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Fiscal governance in the EU Member States

Why is fiscal governance important?

How can sound and sustainable public finances be ensured? In practice, public debt-to-GDP ratios across many EU Member States have followed an upward trend since the mid 1970s implying a growing burden on future generations. Recently, the fiscal impact stemming from the financial and economic crisis has further increase debt ratios intensifying the need for fiscal consolidation in view of ageing population. Policy experiences show that strong fiscal governance is an important factor for fiscal performance insofar as it can help contain the deficit bias of fiscal policy making, which was frequently observed across EU Member States over the past decades. This has also been acknowledged by the European Council Choose translations of the previous link  which in the reform of the Stability and Growth Pact in 2005 asked EU Member States to strengthen their domestic fiscal governance through fiscal rules and institutions. This database provides details on the EU Member States' fiscal governance.

What is fiscal governance?

National fiscal governance, or domestic fiscal frameworks, can be defined as those rules, regulations and procedures that influence on how budgetary policy is planned, approved, carried out and monitored. This includes particularly:

What is the objective of fiscal governance?

Fiscal governance has several objectives:

  • attaining sound budgetary positions in particular by containing the deficit bias, i.e. tackling the tendency to conduct unsustainable fiscal policies giving rise to high deficits and increasing debt ratios,
  • reducing the cyclicality of fiscal policy making and
  • improving the efficiency of public spending.

The containment of the deficit and pro cyclical biases can be achieved, for example, by constraining the behaviour of policy makers and promoting a more long-term oriented fiscal planning. This would help avoid the short term approach typically associated to political cycles while alleviating the common pool problem.

Sound fiscal governance also pursues a better coordination among the various government layers, particularly in those highly decentralised countries.

Finally, fiscal governance may support the efficient use of public resources by monitoring the efficiency of public spending programmes and linking the resource allocation to performance.

What information will you find here?

You will find detailed qualitative information and data on the main elements of domestic fiscal frameworks (i.e. numerical fiscal rules, independent public institutions and medium term budgetary frameworks MTBFs) as well as indices on the strength and quality of budgetary rules and MTBFs developed by the Commission services. The information has been assembled through surveys coordinated by the Commission services and the  Economic Policy Committee (2009 and 2010) and its Working Group on the Quality of Public Finances (2006 and 2008) respectively. The questionnaires were filled in by Member States, and provided the staple information for several issues of the Public Finance Report in EMU and some research papers. Following the April 2009 Council conclusions the database is updated annually with 2011 being the most recent update.

 

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