Gauging by numbers: A first attempt to measure the quality of public finances in the EU

Ensuring high quality of public finances (QPF) with a view to supporting long-term economic growth has gained new urgency as the room for fiscal manoeuvre has shrunk in light of the current crisis.

To more systematically analyse QPF and compare developments across countries and over time, a greater focus on identifying and developing comparable QPF indicators is needed. This paper provides a first attempt in this respect. Based on the view that QPF is a multi-dimensional concept, it creates composite indicators for twelve areas of public finances that are linked to long-term economic growth. While the proposed alternative calculation methods yield relatively robust results and findings are in line with conventional wisdom, due to data problems the composite indicators should only be seen as a useful starting point for identifying a country's main strengths and weaknesses in QPF. This would need to be complemented by qualitative analysis that also accounts for country and other specificities