Enforcement of Fiscal Rules: Lessons from the Fiscal Compact

While the European Union (EU) fiscal rules are suspended in the years 2020–2022, new rules are in the making and might be activated in 2023. If the old rules were used again, massive austerity would be required in the face of the strongly elevated level of public debt and the gap to the 60 per cent debt cap in the EU Treaty. A new proposal is suggested in this article which requires only small changes in the Treaty and/or the Fiscal Compact, but a strong overhaul in secondary law, that is, the Stability and Growth Pact. The key ideas are to use net interest payments, as a share of GDP, as the new metric for defining debt sustainability rather than gross public debt. This would allow the adjustment of the rules to changing monetary environments, especially interest-rate levels, and changing differentials between interest rates and growth rates. This way, much more fiscal space would be generated both for higher-debt and lower-debt member states and the entire euro area.

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Balkan Candidate Countries Running for Fiscal Consolidation: Legal Frameworks vs. Economic Results

Comparative Economic Research ◽

10.2478/cer-2019-0020 ◽

2019 ◽

Vol 22 (3) ◽

pp. 7-23

Author(s):

Aleksandra Maksimovska Stojkova ◽

Elena Nesovska Kjoseva ◽

Irena Stojmenovska

Keyword(s):

Fiscal Rules ◽

The Political ◽

The European Union ◽

Fiscal Consolidation ◽

Member States ◽

Fiscal Compact ◽

Balkan Countries ◽

Economic Developments ◽

Legal Frameworks ◽

The Eu

The subject of this paper is four Balkan countries (Albania, Serbia, Macedonia, and Montenegro) that are determined to join the European Union. More particularly, it looks at their work towards accomplishing the political, legal and economic requirements for the EU. Thus, the legislation with the EU Fiscal Compact is the prime focus. Methodologically, the research is based on an assessment of fiscal and monetary legal documents, evaluating the stages of accomplishing the harmonization with the EU’s conditions. Further, cross‑section analyses are made by in putting selected indicators; additionally, the authors compare the four countries’ achievements. The EU’s rigorous fiscal rules are being quietly bypassed, but more frequently by existing member states than the candidate states; this statement is founded on legal and economic arguments, with mathematical estimations. Consequently, the authors question the political courage and financial capacity of the examined countries to cope with the fiscal compact of the superior EU 28 members. The answers are supported with numerous analyses of EU Reports for each country, as well as tables and figures that compare the states’ results and economic achievements vs. EU fiscal consolidation rules. The EU 28 average is givenin addition as a comparison. The conclusion gives across analysis between the four countries and the EU 28 member states, with accompanying argumentation to the main statement about the legal and economic developments of the examined Balkan countries as well as a future prognosis.

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The Sustainability of Public Finances in Republic of Moldova Under EU Fiscal Rules

Scientific Annals of Economics and Business ◽

10.1515/saeb-2016-0112 ◽

2016 ◽

Vol 63 (2) ◽

pp. 149-159

Author(s):

Tatiana Covalschi ◽

Sebastian Lazăr

Keyword(s):

Public Debt ◽

Fiscal Rules ◽

Public Expenditures ◽

Budget Deficits ◽

The European Union ◽

Public Finances ◽

The Public ◽

Republic Of Moldova ◽

Fiscal Compact ◽

The Republic

This paper analyses public finances sustainability in the Republic of Moldova under the European Union fiscal rules, by estimating the structural budget balance indicator using a three steps methodology. We concluded that, except for 2009, the Republic of Moldova complies with the Maastricht numerical fiscal rule; however it does not comply with the new fiscal rules regarding the structural deficit and public expenditures growth that had been set by the Fiscal Compact. The fact that budget deficits and public debt had been sustainable was mainly because of the concessions made by the external creditors in restructuring the public debt and was not a merit of national government. Moreover, since the regular budget deficit and the structural one tell different stories, we strongly advocate for using the latter in order to complement the existing data with a medium-term budgetary view.

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ADVANTAGES OF FOLLOWING A GOLDEN RULE IN A MONETARY UNION

Macroeconomic Dynamics ◽

10.1017/s1365100515000462 ◽

2015 ◽

Vol 21 (2) ◽

pp. 279-310

Author(s):

Séverine Menguy

Keyword(s):

Monetary Union ◽

Sovereign Debt ◽

Debt Crisis ◽

Public Investment ◽

Golden Rule ◽

Fiscal Rules ◽

Investment Expenditure ◽

Growth Pact ◽

Public Consumption ◽

Fiscal Compact

The European sovereign debt crisis has revived the debate about appropriate fiscal rules in the European Economic and Monetary Union. Whereas the Stability and Growth Pact and the Fiscal Compact make no distinction between public consumption and investment expenditure, the aim of the current paper is to analyze the implications of the adoption of the Golden rule in a monetary union, distinguishing between the two types of public expenditure. With the help of a macroeconomic model, we show that introducing a Golden rule and smoothing public investment expenditure would be welfare-improving, and mostly for countries where taxation rates and the productivity of public investment are highest, and for the most closed countries. It would also be the most beneficial for countries where the monetary transmission parameter, the propensity to consume, and the price elasticity of supply are weakest, whereas supply-side distortions are the strongest.

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Analysis of tax-spend nexus for Russian regional budgets

Voprosy Ekonomiki ◽

10.32609/0042-8736-2020-2-5-29 ◽

2020 ◽

pp. 5-29

Author(s):

Evsey T. Gurvich ◽

Natalia A. Krasnopeeva

Keyword(s):

Economic Growth ◽

Fiscal Policy ◽

Causal Relationship ◽

National Economy ◽

Federal Budget ◽

Fiscal Rules ◽

Fiscal Discipline ◽

Federal Level ◽

Regional Budgets ◽

Econometric Technique

We study the tax-spend nexus for Russian regional budgets. Causal relationship running from taxing to spending is found, thus supporting the concept “tax and spend” suggested by M. Friedman. Next, elasticity of expenditure by revenue is estimated for a panel of 80 regional budgets basing on data for 2000—2017. Estimates are in the range of 0.72 to 0.78 (depending on the econometric technique), which exceeds elasticity for the federal budget more than twice. This evidences that fiscal policy at the sub-federal (as distinct from the federal) level has clear pro-cyclical nature. Besides, the largest sensitivity of expenditure to revenue shocks is found for the item “national economy”, implying marked adverse implications for economic growth. We suggest to mitigate this effect by modifying fiscal rules for sub-federal budgets. They are currently aimed primarily at enhancing fiscal discipline, with less emphasis on countercyclical policy, insulating economy from fiscal shocks.

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Fiscal rules: Excessive limitation or indispensable instrument of fiscal sustainability?

Voprosy Ekonomiki ◽

10.32609/0042-8736-2016-4-5-29 ◽

2016 ◽

pp. 5-29 ◽

Cited By ~ 2

Author(s):

E. Gurvich ◽

I. Sokolov

Keyword(s):

Historical Data ◽

Federal Budget ◽

Fiscal Sustainability ◽

Fiscal Rules ◽

External Shocks ◽

Base Price ◽

Depth Analysis ◽

Fiscal Balance ◽

Lower Size ◽

Budget Expenditure

In-depth analysis of international and Russia’s experiences with implementing fiscal rules is presented. Theoretical and empirical evidences are suggested in favor of retaining the present fiscal rules with some modifications aimed at ensuring: a) a relatively stable level of federal budget expenditure with guaranteed full execution of all commitments; b) countercyclical fiscal policy, based on flexibleand proper reaction to revenue changes; and c) robustness of fiscal rules to internal and external shocks. The main new features suggested include modified calculation of the oil base price, different measurement of cyclical fiscal revenues, lower size of structural fiscal balance, and thorough specification of sources for each item of the balance. The modified rules envisage increased flexibility by relaxing to a pre-set extent and for a pre-set time spending limits in response to extreme shocks. The suggested version of fiscal rules has been tested by application to historical data for 2005-2015, and macro projections for 2015-2025.

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