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Do Binding Fiscal Rules Enhance Fiscal Stability? Evidence from European Union Countries

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  • Jocelyne Zoumenou
  • Antonia Lopez Villavicencio

Abstract

This study investigates the impact of fiscal rules on EU countries' fiscal stability, particularly within the Stability and Growth Pact (SGP) framework. By rigorously addressing endogeneity concerns, we show that compliance with budget balance rules (BBR) contributes to fiscal stability. However, countries that comply with all the targets imposed by the SGP simultaneously or that established a constitutional BBR do not perform better than countries that comply exclusively with the budget balance rule. Finally, our results indicate that strong fiscal rules are not necessary to achieve better fiscal discipline.

Suggested Citation

  • Jocelyne Zoumenou & Antonia Lopez Villavicencio, 2024. "Do Binding Fiscal Rules Enhance Fiscal Stability? Evidence from European Union Countries," EconomiX Working Papers 2024-29, University of Paris Nanterre, EconomiX.
    • Handle: RePEc:drm:wpaper:2024-29
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    More about this item

    Keywords

    Fiscal rules; Compliance; European Union; Instrumental Variables; Treatment Effect Models;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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