Castro, Vítor Manuel Alves (2007) The impact of the European Union fiscal rules on economic growth. Working Paper. Coventry: University of Warwick, Department of Economics. (Warwick economic research papers.

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Abstract

This study intends to provide an empirical answer to the question of whether Maastricht and SGP fiscal rules have affected growth of European Union countries. A growth equation augmented with fiscal variables and controlling for the period in which fiscal rules were implemented in Europe is estimated over a panel of 15 EU countries (and 8 OECD countries) for the period 1970-2005 with the purpose of answering this question. The equation is estimated using both a dynamic fixed effects estimator and a recently developed pooled mean group estimator. GMM estimators are also used in a robustness analysis. Empirical results show that growth of real GDP per capita in the EU was not negatively affected in the period after Maastricht. This is the case when the recent performance of EU countries is compared both with their past performance and with the performance of other developed countries. Results even show that growth is slightly higher in the period in which the fulfilment of the 3% criteria for the deficit started to be officially assessed. Therefore, this study concludes that the institutional changes that occurred in Europe after 1992, especially the implementation of Maastricht and Stability and Growth Pact fiscal rules, should not be blamed for being harmful to growth in Europe.

Item Type:	Working or Discussion Paper (Working Paper)
Subjects:	H Social Sciences > HC Economic History and Conditions
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Stability and Growth Pact (1997), Economic development -- European Union countries, Fiscal policy -- European Union countries, Mean value theorems (Calculus), European Union countries -- Economic conditions
Series Name:	Warwick economic research papers
Publisher:	University of Warwick, Department of Economics
Place of Publication:	Coventry
Date:	March 2007
Number:	No.794
Number of Pages:	49
Status:	Not Peer Reviewed
Access rights to Published version:	Open Access
Funder:	Fundação para a Ciência e a Tecnologia (FCT)
Grant number:	SFRH/BD/21500/2005 (FCT)
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URI:	http://wrap.warwick.ac.uk/id/eprint/1413

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