What is the budgetary role of national legislatures in the euro area and what are the implications for fiscal discipline?
A new paper co-written by Dr Moira Catania from the Institute for European Studies attempts to answer this by constructing a legislative power index for all 19-euro area (EA) countries. A two-way fixed effects panel data model is then used to assess the effect of legislative budgetary power on the budget balance in the EA during 2006-2015.
The analysis found that overall, in the EA, formal legislative powers vis-a-vis the national budgetary process are weak, but there is more legislative involvement in Stability and Growth Pact (SGP) procedures, and legislative budgetary organisational capacity is generally quite good. In contrast to the traditional view in the budget institutions literature, this study’s empirical findings show that strong legislative budgetary power does not necessarily result in larger budget deficits.
This confirms that there is scope to improve democratic legitimacy of the national budgetary process in the EA, without necessarily jeopardising fiscal discipline.
The paper can be read in full .
