Fiscal policy in the European Economic and Monetary Union

Jacobus Frederik Michiel de Jong

Research output: ThesisThesis fully internal (DIV)

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Abstract

At the heart of fiscal rules in the EU is the (in)famous 3%-threshold: countries should avoid deficits exceeding 3% of GDP. If deficits exceed 3% of GDP, countries are to undertake consolidation ef-forts. This rule has been hotly debated since its introduction. Many argue that it is inherently procy-clical, by forcing countries with ‘excessive’ deficits to consolidate during recessions. Others stress the poor compliance with European fiscal rules.

Two chapters investigate the effectiveness of European fiscal rules. On the plus side, if recom-mended to consolidate, member states do impose fiscal measures aimed at reducing excessive budget deficits. At the same time, and less desirable, the 3%-rule seems to elicit strategic behavior. Fiscal forecasts for euro area countries by the European Commission, which are used to judge com-pliance with the fiscal rules, are biased upwards when the budget deficit threatens to exceed the 3%-threshold.

The next two chapters look into the economic consequences of consolidation efforts during the crisis. Although significant consolidation measures, implemented by the Dutch government, might have come at the expense of economic growth – at least in the short term – they do seem to have improved investors’ perception of the government’s solvency. More generally, public investments were severely reduced in many developed economies. However, results show that in general the decline of public capital has not diminished potential growth, suggesting that the current level of public investments does not pose an immediate threat to potential output in most countries.
Original languageEnglish
QualificationDoctor of Philosophy
Awarding Institution
  • University of Groningen
Supervisors/Advisors
  • de Haan, Jakob, Supervisor
  • Garretsen, Harry, Supervisor
  • Los, Bart, Assessment committee
  • Sturm, J.-E., Assessment committee, External person
  • Giuliodori, M., Assessment committee, External person
Award date18-Apr-2019
Place of Publication[Groningen]
Publisher
Print ISBNs978-94-034-1513-0
Electronic ISBNs978-94-034-1512-3
Publication statusPublished - 2019

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