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The enforcement dilemma of EU fiscal rules

Author

Listed:
  • Kirchsteiger, Georg
  • Larch, Martin
Abstract
Effective enforcement is an essential element of any fiscal rule. The EU’s Stability and Growth Pact (SGP) has been struggling with this truism since inception. In this paper we show that its effectiveness goes beyond the threat of fines. The notion that deficit-prone member states would adopt a more virtuous fiscal behaviour to avert sanctions under the SGP is overshadowed by the understanding that in the event of a major shock the virtuous countries will come to their rescue as the survival of the entire system is at stake. Unless the underlying risks of running afoul of the SGP are addressed, the effectiveness of fines is limited. Beyond majorities in the decision-making bodies, SGP enforcement crucially depends on the resilience of member states’ economies and the macro-conditionality deficit-prone countries face in the wake of major shocks in return for financial support.

Suggested Citation

  • Kirchsteiger, Georg & Larch, Martin, 2023. "The enforcement dilemma of EU fiscal rules," CEPR Discussion Papers 18304, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:18304
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    More about this item

    Keywords

    Fiscal rules; Stability and growth pact; European union; Rule enforcement;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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