International oversight and the political economy of fiscal discipline in Europe

• Robert Schuman Centre for Advanced Studies

Fabio Franchino presents his research that has important implications for the fledgling EU-wide fiscal policy.

Despite the vast array of theories of fiscal discipline on offer, comprehensive empirical assessments are still few and far between. Fabio Franchino evaluates their explanatory power across all member countries of the European Union (EU) from 1994 to 2019 using the most sophisticated measures of the political determinants, and he puts forward an additional causal mechanism that has been ignored so far: the oversight of national budgets via the EU excessive deficit procedure. He suggests three reasons why this surveillance may engender lower deficits. Results indicate that the impact of oversight in a eurozone country is large, is not confounded by EU fiscal assistance, and offsets several other effects. This finding has very important implications for the fledgling EU-wide fiscal policy. He also shows that 1) at high levels of indebtedness, executive polarisation has counterbalanced the expansionary impact of fragmentation, 2) low replacement risks have given governments the chance to follow their ideological inclinations, at least not until electoral risks have forced them to entertain more deficit spending, and 3) effective semipresidentialism and electoral districting as well the simplicity of the tax structure account for systematic differences between Western European countries.

Fabio Franchino is an Italian political scientist, professor at the University of Milan. His primary research interest concerns the politics and policy of the European Union, especially with regard to policy mechanism design, policy analysis and the theory of delegation.