Unit:
Deparment of EconomicsLibrary of the Faculty of Economics and of the Faculty of Business Administration
Author:
Chatziapostolou Theodore
Dissertation committee:
Νικολίνα Κωστελέτου, Ομότιμη Καθηγήτρια, Τμήμα Οικονομικών Επιστημών, ΕΚΠΑ
Παπανδρέου Ανδρέας, Καθηγητής, Τμήμα Οικονομικών Επιστημών, ΕΚΠΑ
Δαλαμάγκας Βασίλειος, Ομότιμος Καθηγητής, Τμήμα Οικονομικών Επιστημών, ΕΚΠΑ
Αργείτης Γεώργιος, Καθηγητής, Τμήμα Οικονομικών Επιστημών, ΕΚΠΑ
Δάλλα Βιολέτα, Αναπληρώτρια Καθηγήτρια, Τμήμα Οικονομικών Επιστημών, ΕΚΠΑ
Μίσσος Βλάσσης, Ερευνητής, ΚΕΠΕ
Λιαργκόβας Παναγιώτης, Καθηγητής, Πανεπιστημίου Πελοποννήσου
Original Title:
Political Economy of Fiscal Reforms. The case of European Monetary Union
Translated title:
Political Economy of Fiscal Reforms. The case of EMU
Summary:
In recent years, the global economy has faced two major disturbances—the financial crisis of 2007–8 and the pandemic crisis. National governments attempted to revitalise economies by providing necessary financial support. Consequently, their debt soared to unparalleled levels. These developments highlighted the issue of government debt, which has again drawn the attention of economists. The issue of debt becomes more complicated when the analysis concerns the member states of a monetary union (especially in the European Monetary Union-EMU). In the case of EMU, though fiscal cooperation is essential for the stability of the union, it is quite complex. Recently, fiscal rules have been criticized for being too strict and recessionary. All the aforesaid issues are the source of inspiration for this thesis. The hypothesis we attempt to analyze is whether the same fiscal rules can be applied to all the countries of the EMU which have numerous inter se differences. The dominant approach is that fiscal control and prudence are imperative for the stability of the currency. We contribute to this discussion by analyzing fiscal design in monetary unions and assessing the framework of fiscal cooperation in the EMU. While the first part discusses fiscal policy, the second is assesses fiscal design in EMU and the final part develops a model for estimating final consumption expenditures and social benefit expenditures multipliers for three categories of countries, namely, big and small, countries with high debt and countries with low debt and open and less open countries. The findings indicate that final consumption multiplier is higher in small, less open and low debt countries. These findings are in accordance both with the relevant literature and the economic theory. Small economies are easier to mobilise factors of production, less open economies are characterised by smaller externalities of fiscal policy (i.e. less imports) and finally low debt countries have less expenses for servicing their debt.
As for the social benefits expenditures we see the opposite results that is, social benefits multipliers are higher in big, open, and high debt countries. Yet the differences among the countries are smaller. This could be explained on the ground that social benefits are targeted towards a specific group of households which have distinctive and peculiar characteristics. More precisely, these households are, possibly, excluded from financial sector and any money allowance from the government is saved rather than spend, having thus, minor, or even negative impact on economic activity. Further, these household spend their limited income in services or in some primary goods that both are produced domestically. This kind of spendings have limited effects on imports.
In some cases, we report negative multiplier. As for the final consumption multiplier in open economies multiplier is negative. This is in accordance with economic theory given the high volume of imports. On the other hand, social benefit multiplier is negative in less open and small economies. A possible explanation for this is that in both groups of countries social benefits deprive resources from development. This crowding-out effect makes multipliers negative.
As for the size of multipliers findings showed, insignificant size of social benefits multiplier in big, small and less open economies. Moreover, in less open economies also final consumption multiplier is around zero. Yet in low debt countries both social expenditures and final consumption multipliers are high, while only final consumption multiplier is high in high debt and small countries.
These differences in the size of fiscal multipliers have some compelling effects on the structure of the economic governance. The analysis shows that common fiscal rules would not be suitable for every country, given that the role and the effectiveness of fiscal policy are not straightforward and depend on several factors (Part I), there are different frameworks for fiscal monitoring and EMU has several drawbacks in its fiscal design (Part II) and the size of multipliers varies substantially between countries (Part III). The evidence presented in this thesis suggests that the fiscal institutional and legal framework of EMU has neither been designed nor been effective to deal with such an enormous increase in public debt. To apply identical fiscal rules to different countries could ultimately revive the old discussion of the two-speed Europe, this time not in the framework of economic development but that of fiscal adjustment.
Main subject category:
Social, Political and Economic sciences
Keywords:
Fiscal Policy, European Monetary Union, Fiscal Multipliers, Debt, Fiscal Rules
Number of references:
180
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