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EU Budget Expenditure

Selected e-articles

Abstract: Against a backdrop of debt ratio targets being central to recent proposed changes to the EU fiscal rules, we examine errors in official forecasts of the General Government debt ratios and their determinants in 26 member states from 2012 to 2019 when the “six pack” rules applied. We find debt ratio outturns exceeding projected values with forecast errors increasing over a four-year horizon. Larger errors arise where the initial debt ratio exceeds the Maastricht Treaty threshold of 60 per cent. In modelling the forecast errors of the debt ratio, we find that most of the variation is explained by forecast errors in the output growth rate and in the structural budget balance, as well as previous errors in projecting the debt ratio. During the sample period, member states who had not met their medium-term objective of a balanced structural budget were expected to adhere to a net expenditure rule. For countries subject to this requirement, we find undue optimism arising in forecasting the deficit ratio, a determinant of the debt ratio. The implications of these findings for EU policymakers and, in particular, forecasters are considered.

Abstract by the author: In the wake of financial, sovereign debt and health crises, public interventions in the European economy have taken on a new level of breadth, marking a reentry in force of the state in economic life that goes beyond the regulatory state. Yet, these interventions do not follow the old Keynesian interventions neither, being shaped through a particular logic of investment that link public and private actors in a particular configuration. The introduction to this special issue lays out this configuration for the case of the EU and its Member States through the concept of “European Investor state.” By this concept, we refer to the redefinition of the role of European states in the economy as an “investor,” in reference to private investment funds, which the state seeks both to imitate and to enroll. The paper embeds this redefinition of state intervention in the context of the 2010s in Europe, characterized by worries about “secular stagnation” and growing concern about an “investment gap,” interpreted as the failure of financial markets to invest in productive sectors, especially when risky. The budgetary constraints and the ideological outlook then shaped the specific financial and off-balanced sheet tools of the investor state. Finally, the paper explores the implications of the Covid-crisis on this intervention model. It concludes that despite major changes in fiscal policy at the EU level, this approach is likely to persist, because of the lasting interpretation in terms of “investment gap,” which only public-private collaborations are seen to be able to fill.

 

Abstract by the authors: Rule of law spending conditionality marks a turn in the EU’s strategy in the 2020s. The entry of this value into the budgetary sphere represents an economization process, creating room for the development of a transactional approach to rule of law compliance. This article defines this conceptual framework and examines the extent of its application through the case study of three budgetary instruments used during the 2021–2027 cycle: the Recovery and Resilience Facility, the Rule of Law Conditionality Regulation and the horizontal enabling condition of the Charter of Fundamental Rights. Contributing to the recent Europeanization literature, it also emphasizes the change in European governance and in the EU–Member State relationship triggered by the new conditionality culture following the succession of European crises, moving from a traditional politico-legal enforcement model to a transactional one.

 

Abstract by the author: We quantify the sectoral and aggregate effects of the Next Generation European Union program in the Spanish economy. We outline a dynamic model with production and investment networks that allows for different linkages among sectors and countries. Our model can accommodate different stimulus packages, such as public infrastructure investment, current public expenditure, or capital transfers to firms. Considering the amplification effects through the production network, the average impact on gross domestic product over a five-year horizon is estimated to be 1.75% per year, about 0.6% larger than the direct impact estimated without network interactions. Our model also identifies potential threats, such as the emergence of bottlenecks, inflationary pressures from public spending, or shortages of high-skilled workers in certain sectors, that could significantly reduce the program’s positive impact. •We quantify the impact of the Next Generation EU program on the Spanish economy. We build a dynamic multi-sector model to predict the impact of stimulus packages. Network spillovers increase the impact on GDP over a five-year horizon to 1.75%.•The model identifies potential threats such as bottlenecks or labor shortages.

 

Abstract by the author: Against the background of the European Commission’s reform plans of the Stability and Growth Pact, this paper uses NiGEM to simulate the macroeconomic implications of re-applying the fiscal rules in 2024. Next to returning to the unreformed rules, the most prominent options include an expenditure rule. Our results indicate that re-applying the unreformed rules leads to severe cuts in public spending. An expenditure rule would, however, not necessarily alleviate the fiscal adjustment burden. Instead, our simulations show that great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way.

 

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