Beyond the SGP – Features and Effects of EU National-Level Fiscal Rules

The paper provides a comprehensive overview of the numerical fiscal rules in force in the 25 countries of the European Union, examines the reasons for the growing appetite for such rules, and assesses whether they have an influence on budgetary developments. The analysis is based on a new dataset constructed from questionnaires submitted to experts in finance ministries of EU countries which report a large amount of information on the numerical fiscal rules in force in the EU countries over the 1990-2005 period. The paper shows that the number of fiscal rules in force in the EU countries has increased in the past decades. The introduction of the Maastricht Treaty and of the SGP seem to have been catalysts for the introduction of fiscal rules. The analysis, based on the estimation of augmented fiscal reaction functions, confirms the existence of a relation between numerical fiscal rules and budgetary developments. The results show that some dimensions matter particularly for the capacity of fiscal rules to influence fiscal policy. Notably, the share of government finances covered by rules and the presence of strong enforcement mechanisms seem to be particularly relevant. The analysis also shows that there is a link between the design of numerical fiscal rules and the stabilisation function of fiscal policy. These findings confirm that while numerical fiscal rules can be useful devices to ensure better policies, careful attention should be devoted to the way they are designed