Academic journal article International Journal of Business and Information

Fiscal Responsibility Laws in EU Member States and Their Influence on the Stability of Public Finance

Academic journal article International Journal of Business and Information

Fiscal Responsibility Laws in EU Member States and Their Influence on the Stability of Public Finance

Article excerpt

ABSTRACT

This paper assesses the effectiveness of fiscal responsibility laws (FRL) in stabilizing public finance in the member states of the European Union (EU).1 The coordination mechanism of EU fiscal policy is the use and application of established rules for conducting responsible fiscal policy using appropriate instruments of FRL to maintain fiscal discipline, foster economic and macroeconomic growth, and ensure the stability of public finance. The implementation of FRL requires the application of instruments such as budget procedures, numerical fiscal rules, and the existence of independent fiscal institutions. Such instruments differ among the EU member states in terms of institutional models, tasks and competences, quality, and effectiveness. The paper discusses the theoretical implications of FRL and fiscal governance; examines the coordination mechanism of fiscal policy in the EU; assesses the effectiveness of European and national FRL; and concludes that FRL in the EU is diversified because of differences in the instruments used.

Keywords: Fiscal responsibility laws, fiscal governance, the European Union

1. INTRODUCTION

The mechanism for coordinating fiscal policy in the European Union (EU) is the use and application of established fiscal responsibility laws (FRL) in order to ensure the stability of public finance in the member states (the eurozone). The eurozone consists of the countries that have fully incorporated the euro into their national currency. The implementation of responsible fiscal policy requires the use of tools such as budgetary procedures (legislative fiscal rules), fiscal rules (numerical), and independent fiscal institutions/fiscal councils. These tools of fiscal governance are intended to support efforts to stabilize and sustain public finance. Fiscal governance is defined as a combination of institutions, rules, and norms that structure good governance with regard to fiscal policy. Fiscal governance focuses on how fiscal policy is planned, approved, conducted, and monitored. It involves not only public bodies, but also the business sector and civil society [The Governance Report, 2013]. In the EU, fiscal governance includes numerical fiscal rules (balance, debt, spending, income), independent fiscal institutions, and a medium-term budgetary framework (budget planning) - the so-called legislative rules.

With regard to this legislative framework, the EU initiated the so-called "Six-Pack" in 2011 and the so-called "Two-Pack" in 2013. The aim of both frameworks is to maintain fiscal discipline. The Six-Pack includes five regulations and one directive (hence, "six-pack") aimed at introducing greater macroeconomic surveillance. The Two-Pack includes two regulations aimed at further strengthening this surveillance. In addition, the EU Fiscal Pact was signed in 2013 to enforce budget discipline and prevent eurozone states from running up huge deficits. These regulations are in addition to previous solutions such as the convergence criteria of the Maastricht Treaty [1997] and of the Stability and Growth Pact [2005].

The main objective of the current study is to assess the effectiveness of FRL instruments in stabilizing public finance in the EU member states. In their assessment, the authors examine the institutional efficiency of applied solutions at both the European and national levels using the descriptive method and a comparative analysis of public finance conditions in EU member states.

2. FISCAL RESPONSIBILITY LAWS AND FISCAL GOVERNANCE - SOME THEORETICAL IMPLICATIONS

Fiscal policy is government activity relating to public finance and the public budget. Since the essence of fiscal policy is, inter alia, the performance of the stabilization function, fiscal policy should be counter-cyclical, impervious to political pressure, and capable of enabling effective response to changes in real terms. In terms of this definition, the result of fiscal policy is primarily a high degree of fiscal discipline, regardless of the electoral cycle or economic fluctuations. …

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