1 Introduction
How far are economic growth rates in the European Union (EU) affected by fiscal policy?[1] Recent empirical evidence suggests that changes in the level and mix of taxation, public expenditure, or fiscal deficits may have relatively long-run effects on growth rates in OECD countries. After a brief review of the relevant theory and empirical estimates in section II, this paper provides some simulations of possible fiscal-growth scenarios relevant to recent EU experience, in Section III. Important driving forces behind recent European integration have been the convergence criteria for budget deficits within the Euro zone, and a wider drive towards tax harmonisation. Together with some evidence for convergence in the growth rates in per capita income across European countries, this suggests that there may be forces within Europe encouraging both the convergence of key fiscal variables and their resulting growth impacts. Section IV explores some preliminary data on this issue.
Notes
- [1]We define fiscal policy here as the level and structure of taxes and public expenditures, and the extent of budget deficits.
