Abstract
While the principle of delegation has become well established on the national level for monetary policy, fiscal policies remain in the hands of policy makers depending on rent-seeking interest groups. We argue that the Maastricht Treaty provides a unique international commitment that enables governments to follow restrictive fiscal policies by attributing their negative side-effects to Europe, and to implement austerity measures despite rising unemployment or a decline in growth. Hence, the popularity of the European idea is instrumented to enforce fiscal discipline. The paper outlines the political economy framework and presents new econometric evidence.
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Rotte, R., Zimmermann, K.F. Fiscal restraint and the political economy of EMU. Public Choice 94, 385–406 (1998). https://doi.org/10.1023/A:1005042015560
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DOI: https://doi.org/10.1023/A:1005042015560