Fiscal Discipline in EMU? Testing the Effectiveness of the Excessive Deficit Procedure

Government debt and fiscal execution efficiency

“…Chen and Wu (2018) used the unit root test on the debt‐to‐GDP ratio of the Group of Seven (G7) members, Denmark, and Finland and stated that that debt‐to‐GDP ratio cannot be steadily maintained. De Jong and Gilbert (2020) constructed the Excessive Deficit Procedure (EDP) to verify the effect of deficits in European Monetary Union (EMU) members. Qureshi and Liaqat (2020) used the panel vector auto‐regression model to examine the relationship between foreign debt and economic growth in 123 countries during 1990–2015 and found that foreign debt has a negative impact on economic growth.…”

“…In the past, the literature mostly used static and regression methods to analyze influencing factors, ignoring the optimal allocation efficiency of central subsidies (the local government maximizes self‐raised financial resources and central financial resources under the optimal scale of current expenditure and capital expenditure to achieve the goal of minimizing debt). Some scholars study the relationship between government debt and national economic growth, such as Chorafas (2014), Casalin et al (2019), Croce et al (2019), Bal and Rath (2014), Nakamura (2017), Rathnayake (2020), Afonso and Jalles (2020), Chen and Wu (2018), De Jong and Gilbert (2020), and Qureshi and Liaqat (2020). Studies have pointed out the impact of fiscal decentralization on regional health policies (Di Novi et al, 2019), and some scholars have explored the benefits of government tax collection on fiscal decentralization to local governments and residents' poverty (Bellofatto & Besfamille, 2018; Sanogo, 2019), but these studies still focus on the static and causal relationship.…”