Promised Fiscal Expansions and Politics: A European Union Assessment.

Area of Science:

• Political Economy
• Public Finance
• Fiscal Policy Analysis

Background:

• Fiscal policy is crucial for economic management, yet planned objectives often diverge from actual outcomes.
• Understanding the political economy drivers of these deviations, termed fiscal promise gaps, is essential for effective governance.

Purpose of the Study:

• To analyze the political economy causes behind fiscal promise gaps during planned fiscal expansions.
• To quantify the size of these gaps and identify key explanatory factors in European Union countries.

Main Methods:

• Utilized a hybrid narrative approach to identify 68 episodes of promised fiscal expansions.
• Analyzed data from 27 European Union countries spanning from 1992 to 2015.

Main Results:

• Expansionary fiscal promise gaps were substantial, averaging 1.5-2.5% of GDP per episode.
• Government ideology (more leftist), parliamentary opposition strength, government effectiveness, and subnational government influence significantly impact gap size.

Conclusions:

• Initial and economic conditions, alongside political factors, are critical determinants of fiscal promise gaps.
• Decentralization and government characteristics play a significant role in the divergence between fiscal promises and realizations.