International oversight of fiscal discipline

Fiscal discipline, the sustainable balancing of government outlays with revenues, is one of the most extensively theorized and empirically investigated objects of inquiry in political economy. Yet, studies covering European Union (EU) countries have mostly ignored the oversight of national budgets via the EU excessive deficit procedure. I explain why this surveillance engenders lower deficits and investigate its effects across all EU member countries. Results indicate that the impact of surveillance during budget drafting offsets that of a two-year shortening of expected government duration, the addition of one party to a government coalition when debt is high, or a leftward shift in government ideology when the risk of replacement is low. Moreover, estimates from exact matching on treatment histories indicate that these effects peak after four to five years. These findings have important normative implications for democratic policy-making in European countries and the fledgling EU-wide fiscal policy.

Automated summary

Fiscal discipline, which refers to the balancing of government outlays and revenues, has been extensively studied in political economy. However, the oversight of national budgets by the European Union (EU) excessive deficit procedure has mostly been ignored in studies covering EU countries. This research explains why this oversight leads to lower deficits and investigates its effects across all EU member countries.