<abstract xmlns="http://www.w3.org/1999/xhtml"><p><italic>Several reforms aiming to strengthen budgetary discipline in the European Union have been implemented since the outbreak of the European debt crisis. Arguably the most important one is the Fiscal Compact, which stipulates that each signatory country must enshrine in domestic legislation an upper limit on the structural budget deficit, that is, the deficit after cyclical and other temporary factors have been excluded. This paper analyses the contents of the Fiscal Compact and discusses challenges for its implementation and efficacy. The conclusion is that the Fiscal Compact may be challenging to implement and enforce because the rules are very complex and require complicated calculations that are subject to very large forecasting uncertainty. The Fiscal Compact could, however, lead to a stronger national commitment to fiscal prudence.</italic></p></abstract>

Several reforms aiming to strengthen budgetary discipline in the European Union have been implemented since the outbreak of the European debt crisis. Arguably the most important one is the Fiscal Compact, which stipulates that each signatory country must enshrine in domestic legislation an upper limit on the structural budget deficit, that is, the deficit after cyclical and other temporary factors have been excluded. This paper analyses the contents of the Fiscal Compact and discusses challenges for its implementation and efficacy. The conclusion is that the Fiscal Compact may be challenging to implement and enforce because the rules are very complex and require complicated calculations that are subject to very large forecasting uncertainty. The Fiscal Compact could, however, lead to a stronger national commitment to fiscal prudence.

Enhanced Fiscal Governance in the European Union: The Fiscal Compact

Department of Finance and Economics, Tallinn University of Technology Akadeemia tee 3-478, Tallinn 12618, Estonia

Department of Finance and Economics, Tallinn University of Technology Akadeemia tee 3-486, Tallinn 12618, Estonia

TalTech Journal of European Studies

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

{"article-title":"Enhanced Fiscal Governance in the European Union: The Fiscal Compact"}

Several reforms aiming to strengthen budgetary discipline in the European Union have been implemented since the outbreak of the European debt crisis. Arguably...

Enhanced Fiscal Governance in the European Union: The Fiscal Compact

Published Online: Feb 01, 2015

Page range: 73 - 92

DOI: https://doi.org/10.1515/bjes-2015-0006

Keywords
cyclical adjustment, European Union, Fiscal Compact, fiscal rules

© 2015 Merike Kukk and Karsten Staehr

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Enhanced Fiscal Governance in the European Union: The Fiscal Compact

Published Online: Feb 01, 2015

Page range: 73 - 92

DOI: https://doi.org/10.1515/bjes-2015-0006

Keywordscyclical adjustment, European Union, Fiscal Compact, fiscal rules

© 2015 Merike Kukk and Karsten Staehr

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
cyclical adjustment, European Union, Fiscal Compact, fiscal rules