The political economy of budget deficits in the European Union: the role of international constraints and domestic structure

Abstract:

This article tries to evaluate the impact of domestic and international factors on both deficits and deficit reduction in the European Union. Based on data covering 14 countries and 20 fiscal years (1978-97) it tests the major hypotheses in the political economy literature. Beyond the investigation of the causes of cross-sectional variations in budget outcomes, the authors are also interested in changing patterns of influences over time, resulting from so-called 'structural breaks'. On the one hand, the authors' pooled time-series analyses show that very few political and institutional factors influenced the budget outcomes of the EU Member States during this period. On the other hand, their estimation results provide suggestive support for the assumption that 'Maastricht' amounted to a decisive structural break.