2012 Report on Public finances in EMU

The 2012 Report on Public Finances in EMU presents recent budgetary developments, reports developments in budgetary surveillance, proposes an analysis of the effect of fiscal multipliers on the possibility of self-defeating fiscal consolidations and shows the relevance of fiscal frameworks for budgetary outcomes at the sub-national level in the EU.

The annual Report on Public Finances in EMU brings together in a single publication a review of key policy developments and analytical findings in the area of the public finances.

For 2012 the report reviews the reform of the EU budgetary surveillance which entered into force in late 2011 and the status of the proposals for the further reforms currently under consideration. Moreover it describes the evolution of Member States’ fiscal policies. It then studies the relationship between fiscal consolidation and growth (as captured by the fiscal multipliers) before moving on to present the impact of decentralization of tax and spending responsibilities on debt sustainability in the EU.

In more detail though, the report starts with a detailed description and analysis of recent budgetary developments and an assessment of the outlook over the coming years. Second, it discusses the various components of the 2011 reform of the Stability and Growth Pact, the new proposals which are currently being discussed in the Council and the European Parliament and explains their interaction with the `fiscal compact’.

The third and fourth parts of the report provide analytical work on topical issues for fiscal policy makers. For 2012 the third part analyses the possibility that consolidation may be self-defeating by eventually inducing an increase in the debt ratio. The part shows that when first-year multipliers and debt levels are high, consolidations can be self-defeating but that such cases only materialise in very specific circumstances and are a short-run phenomenon.

Finally, in the fourth part, the Report describes the evolution of fiscal decentralisation across the EU and considers the operation of fiscal frameworks within a context where fiscal powers are increasingly devolved to sub-national authorities. It shows that decentralization brings positive consequences for the general government budget provided that sub-national authorities are themselves responsible for financing their expenditures.

DOI: Public finances in EMU 2012 http://dx.doi.org/10.2765/18911

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