An empirical investigation into the Europeanization of fiscal policy

Abstract:

We investigate the Europeanization of fiscal policy in the eurozone. So doing, we empirically test the impact of a series of pertinent variables on eurozone member states’ fiscal policies during the 1984–2006 period. In addition to a host of usual suspects, we introduce two new measurements to capture a country’s Stability Culture – the effect of which has been not been addressed by previous empirical work. We find evidence that government debt is primarily driven by the state of the domestic economy. Virtually, no empirical support for the claim that institutional, political or ideational factors influence the variations in gross debt can be provided. Specifically, our results show that neither a population’s inflation aversion nor policymakers’ pledge to ‘sound’ public finances translate into lower deficits.