1. Introduction
The Maastricht Treaty and the Stability and Growth Pact (SGP) impose budgetary obligations on the
Member States. In order to facilitate the respect of these obligations, both of them also stress the
importance of national rules and institutions for budgetary discipline. The Protocol on the excessive
deficit procedure annexed to the EU Treaty states that Member States shall ensure that national
procedures in the budgetary area enable them to meet their obligations in this area deriving from this
Treaty. The report on the SGP reform endorsed by the European Council on 22 March 2005 states that
national budgetary rules should be complementary to the Member States’ commitments under the
Stability and Growth Pact and that national institutions could play a more prominent role in budgetary
surveillance to strengthen national ownership, enhance enforcement through national public opinion and
complement the economic and policy analysis at EU level.
The importance attached to national fiscal rules and institutions in the reformed SGP is not fortuitous.
Recent economic history provides evidence that policymakers do not always pursue time consistent and
sustainable fiscal policies: the tendency to conduct pro-cyclical fiscal policies and the recent increase of
debt ratios in a number of developed economies point to the existence of a deficit bias. The explanations
for this bias generally point to the consideration that policymakers may not have the right incentives to
pursue sound public finances in the long run. In this context, a number of proposals have been put
forward with the intention of modifying national fiscal frameworks that form the environment, the
incentives and the constraints under which policymakers operate, in a way that would foster the conduct
of sound fiscal policies.
The proposals concerned notably (i) the procedural rules laid down in law or constitution governing the
elaboration and implementation of the annual budget law; (ii) the numerical fiscal rules which are
guiding or imposing constraints on the discretion of policy-makers; and (iii) national independent
institutions, other than government and Parliament, possibly influencing fiscal policy.
This chapter reviews the numerical fiscal rules in force in the 25 EU Member States and assesses their
influence on budgetary developments. The questions related to the desirable characteristics of the
budgetary process have already been extensively addressed in the literature and are outside the scope of
this chapter. The aim of the analysis is not to make an overall judgement on the quality of national
budgetary rules and institutions in the EU countries. The study should therefore not be read as a plea per
se in favour of particular arrangements, since there is no single best institutional framework that would
be suitable for all countries.
Section 2 provides empirical evidence on the existence of a deficit bias in the EU countries and other
developed economies. It discusses the main reasons for the existence of such a bias and some possible
ways to address it. And Section 3 is devoted to the analysis of numerical fiscal rules in the EU Member
States and their impact on budgetary developments. The analysis is based on a new dataset providing a
comprehensive overview of existing numerical fiscal rules in the EU.
2. Rationale for the introduction of numerical fiscal rules at the national level
2.1. Introduction
The economic literature has provided abundant analysis on how taxes, government expenditures and
budget balance should be set over the business cycle for fiscal policy to be considered optimal and
sustainable. However, experience has provided ample evidence that such policies were in practice not
always pursued by policy-makers. Some of the most evident signs have been the tendency to conduct
pro-cyclical fiscal policies and the propensity to finance public expenditure with debt in a number of
industrialised economies. The debate on the ways to address the deficit bias has focused on the need to