Budget Institutions in the Euro Area Quality of budget institutions, legislative budgetary power and implications for fiscal discipline

This study assesses the quality of national budget institutions and legislative budgetary power in the Euro Area (EA) and examines their implications on fiscal discipline. Following the sovereign debt crises, common EA requirements have been introduced for national budget institutions, most notably for fiscal rules and independent fiscal councils. Meanwhile, the legislature has a key role to ensure that budgetary decisions are democratically legitimate, but strong legislative budgetary power is generally associated with less fiscal restraint. Two comprehensive composite indices are produced, based on recent data which captures reforms implemented after the Crisis. The findings show that overall, budget institutions in the EA are of medium quality, whilst legislative budgetary power is weak. Notwithstanding the thrust for a ‘one-size-fits-all’ approach, the specific characteristics of budget institutions differ considerably among the EA countries. Furthermore, results from a two-way fixed effects panel model for 2006-2015 show a positive relationship between the quality of budget institutions and the budget balance, but, in contrast to previous studies, the effect is rather weak. Being supra-nationally mandated, recent reforms to budget institutions in EA member states may suffer from a lack of ownership, thus impinging on their effectiveness to instil fiscal discipline. A qualitative case study on Malta provides further insight into the limitations of centrally-mandated institutional reforms. Finally, the findings suggest that stronger legislative budgetary power does not necessarily jeopardise fiscal discipline, if this involves a broad role of the legislature in the budgetary process, beyond amendment powers.

URI

http://hdl.handle.net/10454/17675

Type

Thesis

Qualification name

PhD