Keep it complex! Prodi's curse and the EU fiscal governance regime complex

The EU fiscal framework has gradually morphed into a regional regime complex through various reforms of the preventive and corrective arms of the Stability and Growth Pact. A regime complex encourages actors to arbitrage between partially overlapping, parallel and nested rules. By drawing on this central insight, this article demonstrates that regime complexity enables member states to respect the letter but not the spirit of the fiscal rules to lower the cost of compliance. It further shows empirically how regime complexity weakens technocratic enforcement capacity when authority is dispersed across multiple levels of governance by focusing on the example of the general escape clauses during the coronavirus pandemic.

Sub-sovereign Fiscal Rules in Poland in Comparison with Measures Adopted in the US, China, and Selected EU Countries

Measures to increase debt sustainability and related creditworthiness play an important role in sovereign fiscal policy. The establishing of fiscal rules delimits fiscal policy through specific limits for particular budget aggregates. Fiscal rules in Poland were analyzed against measures applied in European Union countries, with emphasis on changes due to COVID-19. Also differences in fiscal rules at the regional and local level in the United States, China, and Poland are described. Conclusions from the research lead to the identification of a relationship between the restrictiveness of the rules and possibilities to maintain budget balance and prevent excessive indebtedness. Important conclusions may be also drawn from different reactions for crisis in the fiscal rules area – from relaxing the rules to wide use of special fund or financial vehicles – which were crucial states reply to fiscal burdens. © 2023 Lex localis.

This time is different: Fiscal response to the COVID-19 pandemic among EU countries

This paper empirically analyses fiscal policy behavior in the European Union (EU) Member States and assesses how it has changed during the recent pandemic crisis compared to previous crisis periods. Based on panel estimations, we find that the fiscal reaction has been different this time, both concerning the policy direction as well as its magnitude. We argue that fiscal policy has turned from formally pro-cyclical design prior to COVID-19 period to counter-cyclical in the pandemic years, on average. While this is naturally driven by the wide roll-out of fiscal support measures during the pandemic, including health care expenditures and spending on job security, the change in the fiscal reaction function is still visible if these effects are taken away from the budget, even though the move is less pronounced and signifies a change from a pro-cyclical to an a-cyclical fiscal regime.

THE LONG-LASTING POST-COVID SYMPTOM: THE CASE FOR THE EU FISCAL RULES REFORM?

The paper investigates compliance with the EU fiscal rules in the period 1992–2020. The EU fiscal rules are prescribed as guidelines and represent a typical example of the soft law approach. The negative impact of the soft law approach is more visible after the periods of economic crisis (2008–2009;2020–2022). The non-compliance with the prescribed ceilings on the level of the budgetary deficit and public debt create instability and various adverse economic effects. In the paper it is shown that existing rules are not adequate for the job they were made for. It is shown that the design and enforcement of the rules are poor, and that actually the European Commission, the watchdog, is in fact a toothless dog. The goal of the paper is to present potential reform alternatives with the aim to contribute to the rees-tablishment of the sound fiscal framework in the EU. The paper is concluded with the proposal of a completely new approach for the fiscal rules reform – Growth-En-hancement Fiscal Policy Switch (GEFPS). © 2022 Pravni fakultet Univerziteta Union.

The Impact of COVID-19 Crisis on Fiscal Environment in Romania

The economic and financial crisis generated by COVID-19 has determined a huge pressure on the state, to which is automatically assigned a dual role, with a major importance in relaunching the Romanian economy. The state authorities remains within the role of collecting the budgetary revenues of fiscal nature, necessary to ensure the smooth functioning of health, education, justice, etc. On the other hand, it is absolutely necessary the intervention of the state through measures that support the business environment and individuals in order to overcome the negative effects generated by the lack of liquidity. The intervention on the existing fiscal pressure requires rapid action, applicable as soon as possible, without exceptions and without excessive bureaucracy, with an involvement and collaboration between the state authorities and the business environment, respectively taxpayers, based on honesty, fairness and total transparency. The reduction of fiscal budget revenues (felt today) is indisputable. However, taking into consideration this context, measures as increasing taxation, maintaining the fiscal burden in order to obtain budgetary revenues to cover the existent budgetary expenditures represents only a clear path to the disaster of Romania’s economy. The only viable solution outlined is based on the resettlement of budget expenditures, simultaneously with the temporary waiver of part of the tax revenues in order to restart the activity of companies. The onset of the COVID-19 crisis means a total ‘restart’ of the business environment. On the other hand, it can also be an opportunity for the state authorities to intervene in the continuity of the activity of those companies that have shown ‘inappropriate tax behavior’ for long periods of time. © 2021, The Author(s), under exclusive license to Springer Nature Switzerland AG.

Debt policies in the aftermath of COVID-19 - The SGP's debt benchmark revisited.

The post-COVID-19 period is likely to be characterised by an intensified stabilisation-sustainability trade-off. This paper revisits the design of the Stability and Growth Pact's debt rule in the context of two debates on fiscal policies: first, the implications of the low interest environment for debt sustainability and the appropriate interaction of fiscal and monetary policies and, second, the reform of the EU fiscal governance framework. In both debates the choice of government debt anchor and the speed of adjustment take centre stage. The debt rule appears predestined to fulfil the role of debt anchor. However, our analysis shows that its existing design gives rise to a pro-cyclical bias that has hampered its implementation in a low-growth and inflation environment. We propose two parametric changes to better balance the objectives of macroeconomic stabilisation and debt sustainability: first, accounting for persistent deviations of inflation from the central bank's target; and, second, a reduced speed of adjustment. Putting a reformed debt rule at the centre of the EU fiscal governance framework would allow reducing the latter's complexity without the need to revise the EU Treaties.

EU Governments Must not Return to Their Dysfunctional Fiscal Rules

Fiscal rules such as the European Stability and Growth Pact and the German debt brake have been suspended in the Covid19-pandemic in order to provide emergency measures and to overcome the crisis. Now, the controversial debate is back again: When should governments return to fiscal rules? Should they return to fiscal rules, at all? This article argues that it is not so much a question whether governments should return to fiscal rules at all, but to which kind of rules they should return. Following the deficit bias argument and the need for fiscal policy coordination in a monetary union some kind of limitation for government debt and some kind of fiscal rules may easily be justified. However, that does not mean that governments should return exactly to the previously existing rules, because these are economically flawed. Recently the argument for reform has become even stronger due to new empirical evidence about the macroeconomic effectivity of fiscal policy, the experience of the dysfunctionality of the existing rules during the Euro crisis and the fact that the cost of public debt has been reduced dramatically because of persistently low if not negative nominal interest rates. © 2021 Walter de Gruyter GmbH, Berlin/Boston 2021.