The Impact of Fiscal Rules on Public Finances: Theory and Empirical Evidence for the Euro Area

26 Pages Posted: 18 Jan 2011  

Wim Marneffe

Hasselt University - Faculty of Applied Economics

Bas Van Aarle

Leuven Centre for Irish Studies LCIS; CESifo (Center for Economic Studies and Ifo Institute); Radboud University Nijmegen - Department of Economics

Wouter van der Wielen

KU Leuven - Center for Economic Studies

Lode Vereeck

Hasselt University - Faculty of Applied Economics

Date Written: December 30, 2010

Abstract

This paper presents a review of the most significant fiscal rules policymakers can choose from. The insights from this review are then applied to the current budgetary situation of the European Union. In the European Union, the supranational Stability and Growth Pact (SGP) should provide the necessary guidance in limiting governmental borrowing by member states. In addition to the SGP, European countries are implementing various other fiscal rules that bind central, regional and local governments. We provide empirical estimates of the effect of fiscal rules on fiscal balance, government spending and government revenues, using a Fiscal Rule Index. We find that fiscal rules have some effect on fiscal balances.

Keywords: euro area, fiscal policy, policy rules, fiscal sustainability

JEL Classification: F31, F41, G15

Suggested Citation

Marneffe, Wim and Van Aarle, Bas and van der Wielen, Wouter and Vereeck, Lode, The Impact of Fiscal Rules on Public Finances: Theory and Empirical Evidence for the Euro Area (December 30, 2010). CESifo Working Paper Series No. 3303. Available at SSRN: https://ssrn.com/abstract=1742765

Wim Marneffe (Contact Author)

Hasselt University - Faculty of Applied Economics ( email )

Agoralaan 30, Building D
Diepenbeek, 3590
Belgium

Bas Van Aarle

Leuven Centre for Irish Studies LCIS ( email )

Janseniusstraat 1
Leuven, 3000
Belgium
+32 16 310433 (Phone)
+32 16 310431 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

Radboud University Nijmegen - Department of Economics ( email )

P.O.Box 9108
6500 HK Nijmegen
Netherlands
+31 24 3616172 (Phone)
+31 24 3611846 (Fax)

Wouter Van der Wielen

KU Leuven - Center for Economic Studies ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

Lode Vereeck

Hasselt University - Faculty of Applied Economics ( email )

Agoralaan 30, Building D
Diepenbeek, 3590
Belgium

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