An empirical investigation into the Europeanization of fiscal policy

Abstract

We investigate the Europeanisation of fiscal policy in the eurozone. So doing we empirically test the impact of a series of pertinent variables on eurozone Member States' fiscal policies during the 1984-2006 period. In addition to a host of usual-suspects, we introduce two new measurements to capture a country's Stability Culture -the effect of which has been not been addressed by previous empirical work. We find evidence that government debt is primarily driven by the state of the domestic economy. Virtually no empirical support for the claim that institutional, political or ideational factors influence the variations in gross debt can be provided. Specifically, our results show that neither a population's inflation aversion nor policy-makers' pledge to 'sound' public finances translate into lower deficits.

What Drives Political Parties' Commitment to the ‘Stability Culture’? An Empirical Analysis Based on the Electoral Manifestos Issued in EU Member States

“…The creation and expansion of the EMU triggered the spread of the ‘stability culture’ in European countries and nowadays it is considered a requisite for eurozone membership (Underhill, ). Indeed, LeMay‐Boucher and Rommerskirchen () claim that acquiescence with the supranational fiscal framework has shaped domestic political behaviour of eurozone Member States, by imposing a ‘stability culture’ (LeMay‐Boucher and Rommerskirchen, , p. 4).…”

“…Following LeMay‐Boucher and Rommerskirchen (), in our econometric analysis, party support to macroeconomic stability is measured as the percentage of ‘economic orthodoxy’ quasi‐sentences in electoral manifestos; CMP defines economic orthodoxy as a set of economic policy prescriptions, such as reduction of budget deficits, retrenchment in crisis, thrift and savings; support for traditional economic institutions such as stock market and banking systems; support for strong currency. This variable is used as the regressand in the empirical analyses whose methodological features are presented in the following section.…”

“…The paper empirically investigates political programmes released during the elections held in 27 European Union countries during the period 1990–2012, by looking at the causes of ‘economic orthodoxy’ issue emphasis (as suggested by LeMay‐Boucher and Rommerskirchen, ), in the Comparative Manifesto Project database (CMP henceforth).…”

“…As far as we know, this is one of the first attempts to analyze this specific topic as previous contributions analyzed political parties' commitment to the ‘stability culture’ in merely descriptive terms (Underhill, ), or they focused on such commitment as a driver of economic and institutional outcomes (Heinemann et al ., ; LeMay‐Boucher and Rommerskirchen, ).…”