What Determines Fiscal Deficits in Europe? The Impact and Interaction of EMU Membership, Fiscal Rules, Fiscal Councils and Creative Accounting

  • 1 Staatswissenschaftliche Fakulät, Universität Erfurt, Nordhäuser Straße 63, Erfurt, Germany
Dominik Maltritz
  • Corresponding author
  • Staatswissenschaftliche Fakulät, Universität Erfurt, Nordhäuser Straße 63, 99089, Erfurt, Freistaat Thüringen, Germany
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and Sebastian Wüste
  • Staatswissenschaftliche Fakulät, Universität Erfurt, Nordhäuser Straße 63, 99089, Erfurt, Freistaat Thüringen, Germany
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Abstract

We search for drivers of fiscal deficits in Europe using a data panel containing annual data of 27 EU countries in the years 1991–2012. Our special focus is on the influence of fiscal rules as well as on fiscal councils, i. e. institutions that may help to reduce deficits and enforce fiscal rules by advising governments. We distinguish between internal fiscal rules and external rules that result from EMU membership. In addition, we consider the impact of “creative accounting”, i. e. measures that help to circumvent fiscal rules, which we approximate by so called stock-flow-adjustments. We especially analyze the interactive influence of the mentioned variables on the budget balance.

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