Conference Agenda

The paper examines whether, and at what level of public debt, European fiscal rules are associated with different cyclical patterns of fiscal policy. Using ex ante fiscal plans and output gap forecasts from European Commission Autumn vintages for 26 EU countries (2008–2019), we estimate annual country-specific measures of fiscal cyclicality through time-varying coefficient models. To address simultaneity, we complement a time-varying specification with a novel instrumental-variable estimator based on kernel methods, using an external demand shifter as instrument. The estimated coefficients are then related to the strength of fiscal rules, relying on continuous indices from the IMF and the European Commission within a panel threshold framework. A robust debt threshold emerges at around 87% of GDP: above it, stronger rules are associated with greater pro-cyclicality; below it, the relationship is weak. These findings suggest that in high-debt environments rule-based surveillance may amplify cyclical pressures unless flexibility is explicitly debt-contingent.

For 27 EU countries, for the period 1995-2024, this paper assesses the tax-and-spend versus the spending-and-tax hypothesis, in the context of fiscal rules and sovereign risk awareness. Results show that a one percentage point increase in revenue (spending) ratios leads to an increase of 0.87 (0.51) pp in spending (revenue) ratios, hinting that the average budget decision-making has been more dominated by the revenue side. Moreover, the single currency produces tighter fiscal synchronization between the two sides of the government balance sheet. In addition, stronger fiscal rules help decreasing government spending while contributing to increasing government revenues. Finally, regarding the tax-and-spend analysis, an increase in the sovereign ratings leads to higher spending ratios, which can be seen as fiscal authorities having a better assessment from capital markets, which accept some additional government spending.

This study investigates the impact of fiscal rule stringency on political corruption in developing countries. Using a panel of 108 countries over the period 1997–2020 and applying the Entropy-IV method, the results indicate that greater fiscal rule stringency significantly reduces corruption. This effect, which remains robust across several specifications, suggests that rule-based frameworks can generate side effects beyond their initial objective of mitigating deficit bias. The analysis also reveals that the impact of fiscal rule stringency is primarily observed in upper-middle-income countries and in contexts where executive power faces moderate institutional constraints. Moreover, we identify a threshold effect, indicating that while increasing stringency initially reduces corruption, excessively rigid fiscal rules may become counterproductive. Overall, these results suggest that what matters most is not the mere adoption of fiscal rules, but their design, credibility, and appropriate level of stringency.

This paper examines the cyclicality of tax expenditures, using panel data for both developed and developing economies. The analysis reveals that tax expenditures exhibit pronounced procyclicality in developing economies, whereas in developed economies they display a countercyclical pattern. These results are consistent with prior research on statutory tax and deficit adjustments across the business cycle. By using a stylized model, I show that observed behavior in developing economies is consistent with debt constraints; in particular, legitimate lagged report of tax expenditures in the formal budget, creates an incentive for non-transparent political maneuvering.