The politics of fiscal rules within the European Union
Abstract
Over the last 25 years, fiscal rules (FRs) have been proliferating in Europe
bringing in-depth change to the architecture of fiscal institutions. This paper
investigates different theories explaining the changes in national fiscal rules
stringency (FRS) using a panel of 28 European countries from 1990 to 2013.
The authors found evidence that fiscal stress prevents fiscal reform in the
short term, and leads to stronger fiscal rules in the long term. This pattern
corresponds to the ‘war of attrition’ argument formulated by Alesina and
Drazen [(1989) ‘Why are stabilizations delayed?’, The American Economic
Review 81(5): 1170–88]. The authors found evidence that countries eager to
join the EU showed their commitment to Maastricht targets by incorporating
FRs into national laws. Countries facing financial difficulties after the 2009
sovereign debt crisis were coerced into adopting more stringent FRs to obtain
fiscal support from the EU. Both cases support the idea that coercive
diplomacy might explain the strength of national fiscal rules in the EU.