Academic journal article Public Administration Review

Budgetary Collective Action Problems: Convergence and Compliance under the Maastricht Treaty on European Union

Academic journal article Public Administration Review

Budgetary Collective Action Problems: Convergence and Compliance under the Maastricht Treaty on European Union

Article excerpt

Introduction

When governments enter into budgetary accords and treaties or institute debt limitations by way of constitutions or statutes, they create potential collective action problems in which the dilemma is maintaining compliance with the terms of the agreement. The Maastricht Treaty on European Union--like many recent budgetary agreements in the United States, including the two versions of Gramm-Rudman-Hollings and the 1990 Budget Enforcement Act--may best be understood as such a problem, where, to achieve group compliance, the terms of the treaty, the monitoring of its participants, and the application of positive and negative sanctions serve to constrain "free riders" who seek to escape the treaty's burdens while sharing in its rewards.

The Maastricht Treaty constitutes one of the world's most important experiments in public budgeting and is the focus of this study. Although broad budgetary agreements with deficit targets have become commonplace in the United States, the Maastricht Treaty creates the first such international budgetary treaty, with each country converging toward the same targets. The leaders of the European Community signed an agreement at Maastricht, the Netherlands, in 1992 to achieve a full monetary union that began in January 1999. The resulting Economic and Monetary Union (EMU) created a single currency--the euro--and established a central monetary authority, the European Central Bank, modeled along the lines of Germany's independent Bundesbank. To become a member of the EMU, applicant nations engaged in fiscal convergence by meeting specified budget deficit and debt targets. Although there are other membership criteria in the treaty regarding inflation rates, long-term interest rates, and currency devaluation, its deficit and debt targets clearly have taken center stage in recent European politics. In the case of the Maastricht Treaty, the collective action problem is gaining the compliance of free riders who seek to escape the fiscal burdens imposed by the treaty, but who seek the political and economic benefits of the EMU.

The problem of compliance in budgeting, where political actors and administrators often seek to evade or manipulate budgetary laws and constraints, is a perennial one. In the United States, after state governments enacted constitutional balanced budget requirements in the nineteenth century, politicians and bureaucrats devised special taxing districts, nonguaranteed borrowing, off-budget spending, and capital budgets to spend beyond their constitutional limits (Heins 1963; Savage 1988). More recently, in response to Gramm-Rudman-Hollings and other budget agreements aimed at balancing the budget and restraining spending, politicians created"rosy scenarios" and endless scorekeeping and accounting tricks, which White and Wildavsky label "fakery" (1989). Jones and Euske (1991) describe these efforts by governments to evade or manipulate budgeting rules as "strategic misrepresentation," and Meyers (1994) labels the struggle between spending advocates and those who control spending as "strategic budgeting."

To counter free riding and evasion, collective action theory offers a variety of game theoretic solutions to achieve compliance. These solutions, such as the "Folk Theorem," "Leviathan," and "Leader-Follower," ultimately rely on at least a four-stage process to achieve compliance (Axelrod 1981, 1984, 1986; Bendor and Mookherjee 1987: Bianco and Bates 1990; Hardin 1995; Mueller 1979: Setear 1996, 1997). The first stage, the drafting of the laws and setting of norms and targets, such as balancing the budget, proscribes appropriate behavior and outlines positive and negative incentives. The second stage involves the activation of the rules and their implementation in the form of policy making and administration by the group members, who in this case are the treaty's signatories. The third stage comprises the concurrent monitoring of the signatories' behavior by organizations identified by the treaty. …

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