Deficit Bias and Effectiveness of the EU Fiscal Rules

Abstract

The aim of this article is to analyse the fulfilment of the Stability and Growth Pact rules by the EU 15 member states in the period 1999–2015. The article also presents the evolution of the EU fiscal rules since their formulation, including, in particular, the influence of the crisis on both meeting the rules by the member states and their substance. The conclusion of the article is that the construction of the rules is the main cause of the ineffectiveness of the pact in eliminating the deficit bias in the EU. In the analysed period, there were years when the member states did not follow the limits defined by the rules (the whole period, but in particular the years before the crisis), years without anticyclical influence of the rules (in fact, the whole period 1999–2015), and years when the rules turned out not to be elastic enough (the years after the crisis). It leads to the overall conclusion that the EU fiscal rules are not the best tool to counteract the deficit bias in the EU.