Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-12T13:57:09.244Z Has data issue: false hasContentIssue false

It Isn't Just about Greece: Domestic Politics, Transparency and Fiscal Gimmickry in Europe

Published online by Cambridge University Press:  12 May 2014

Abstract

This article analyzes the political origins of differences in adherence to the fiscal framework of the European Union (EU). It shows how incentives to use fiscal policy for electoral purposes and limited budget transparency at the national level, combined with the need to respond to fiscal rules at the supranational level, interact to systematically undermine the Economic and Monetary Union through the employment of fiscal gimmicks or creative accounting. It also explains in detail how national accounts were manipulated to produce electoral cycles that were under the radar of the EU budget surveillance system, and concludes with new perspectives on the changes to (and challenges for) euro area fiscal rules.

Type
Featured Article
Copyright
Copyright © Cambridge University Press 2014 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

Department of Government, Harvard University (email: jalt@iq.harvard.edu); Department of Economics, University of Copenhagen (email: David.Dreyer.Lassen@econ.ku.dk); Department of Government, London School of Economics and Political Science (email: j.h.wehner@lse.ac.uk). We thank John Verrinder and especially Agota Krenusz for advice about Eurostat data. For comments or sharing data we thank Alberto Alesina, Roel Beetsma, Marco Cangiano, Tom Cusack, Achim Goerres, Mark Hallerberg, Tim Irwin, Mark Kayser, Vincent Koen, Ian Lienert, Gian Maria Milesi-Ferretti, Mike Seiferling, Francesco Trebbi, Paul van den Noord, Anke Weber and Joseph Weber, and seminar participants at Boston College, the University of Copenhagen, the Hertie School of Governance, Princeton, Stanford, the annual meeting of the European Political Science Association, and a conference hosted by the International Monetary Fund and the Swedish Ministry of Finance. Verena Kroth, Linnea Mills, Ed Poole and Soledad Prillaman provided research assistance. For financial support Wehner thanks the London School of Economics and Political Science Research Committee Seed Fund and STICERD, Alt thanks Harvard's Weatherhead Center and Lassen thanks the Economic Policy Research Network. The authors alone are responsible for any errors or misinterpretations. Online appendices and data replication sets are available at http://dx.doi.org/doi: 10.1017/S0007123414000064.

References

Alesina, Alberto Perotti, Roberto. 1996. Fiscal Discipline and the Budget Process. American Economic Review 86 (2):401407.Google Scholar
Alt, James E. Dreyer Lassen, David. 2006a. Fiscal Transparency, Political Parties, and Debt in OECD Countries. European Economic Review 50 (6):14031439.CrossRefGoogle Scholar
Alt, James E. Lassen, David Dreyer. 2006b. Transparency, Political Polarization, and Political Budget Cycles in OECD Countries. American Journal of Political Science 50 (3):530550.CrossRefGoogle Scholar
Alt, James E., Lassen, David Dreyer Rose, Shanna. 2006. The Causes of Fiscal Transparency: Evidence from the US States. IMF Staff Papers 53:3057.CrossRefGoogle Scholar
Dai, Xinyuan. 2002. Information Systems in Treaty Regimes. World Politics 54 (4):405436.CrossRefGoogle Scholar
de Castro, Francisco, Pérez, Javier J., Rodríguez-Vives, Marta. 2011. Fiscal Data Revisions in Europe. European Central Bank Working Paper 1342. Frankfurt: European Central Bank.Google Scholar
The Economist . 2011. Germany's Debt Brake: Tie Your Hands, Please. 10 December.Google Scholar
Feldstein, Martin. 2012. The Failure of the Euro: The Little Currency That Couldn't. Foreign Affairs 91 (1):105116.Google Scholar
Frieden, Jeffry, Pettis, Michael, Rodrik, Dani Zedillo, Ernesto. 2012. After the Fall: The Future of Global Cooperation: Geneva Reports on the World Economy 14. London: Centre for Economic Policy Research.Google Scholar
Glennerster, Rachel Shin, Yongseok. 2008. Does Transparency Pay? IMF Staff Papers 55 (1):183209.CrossRefGoogle Scholar
Hallerberg, Mark. 2004. Domestic Budgets in a United Europe: Fiscal Governance from the End of Bretton Woods to EMU. Ithaca, NY: Cornell University Press.Google Scholar
Hallerberg, Mark, Strauch, Rolf von Hagen, Jürgen. 2009. Fiscal Governance in Europe. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Hyde, Susan D. O'Mahony, Angela. 2010. International Scrutiny and Pre-Electoral Fiscal Manipulation in Developing Countries. Journal of Politics 72 (2):690704.CrossRefGoogle Scholar
Inman, Robert P. Rubinfeld, Daniel L.. 1994. The EMU and Fiscal Policy in the New European Community: An Issue for Economic Federalism. International Review of Law and Economics 14 (2):147161.CrossRefGoogle Scholar
International Budget Partnership. 2010. Open Budgets. Transform Lives: The Open Budget Survey 2010. Washington, DC: International Budget Partnership.Google Scholar
Irwin, Timothy C. 2012. Accounting Devices and Fiscal Illusions. IMF Staff Discussion Note SDN/12/02. Washington, DC: IMF.Google Scholar
Keohane, Robert. 1984. After Hegemony: Cooperation and Discord in the World Political Economy. Princeton, NJ: Princeton University Press.Google Scholar
Koen, Vincent, van den Noord, Paul. 2005. Fiscal Gimmickry in Europe: One-off Measures and Creative Accounting. Economics Department Working Paper 417. Paris: OECD.Google Scholar
Lassen, David D. 2010. Fiscal Consolidations in Advanced Industrialized Democracies: Economics, Politics, and Governance. Stockholm: Swedish Fiscal Policy Council.Google Scholar
McArdle, Pat. 2012. The Euro Crisis: The ‘Fiscal Compact’ and Fiscal Policy. Working Paper 6. Dublin: Institute of International and European Affairs.Google Scholar
Milesi-Ferretti, Gian Maria. 2004. Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting. Journal of Public Economics 88 (1–2):377394.CrossRefGoogle Scholar
Organisation for Economic Co-operation and Development. 2002. OECD Best Practices for Budget Transparency. OECD Journal on Budgeting 1 (3):714.CrossRefGoogle Scholar
Rogoff, Kenneth. 2012. A Euro Parable: The Young Couple With a Joint Account. Financial Times 24 April.Google Scholar
Savage, James D. 2005. Making the EMU: The Politics of Budgetary Surveillance and the Enforcement of Maastricht. Oxford: Oxford University Press.Google Scholar
Seiferling, Mike. 2013. Stock-Flow Adjustments, Government's Integrated Balance Sheet and Fiscal Transparency. IMF Working Paper WP/13/63.Google Scholar
von Hagen, Jürgen Wolff, Guntram B.. 2006. What Do Deficits Tell Us About Debt? Empirical Evidence on Creative Accounting With Fiscal Rules in the EU. Journal of Banking and Finance 30 (12):32593279.CrossRefGoogle Scholar
Weber, Anke. 2012. Stock-Flow Adjustments and Fiscal Transparency: A Cross-Country Comparison. IMF Working Paper WP/12/39.CrossRefGoogle Scholar
Supplementary material: PDF

Alt Supplementary Material

Appendix

Download Alt Supplementary Material(PDF)
PDF 1.4 MB
Supplementary material: File

Alt Supplementary Material

Supplementary Material

Download Alt Supplementary Material(File)
File 290 KB
Supplementary material: File

Alt Supplementary Material

Supplementary Material

Download Alt Supplementary Material(File)
File 26.9 KB