Fiscal Convergence in the European Union before the Crisis

This paper investigates fiscal convergence attained by EU countries in the period 1991-2008, by employing β– and σ–convergence techniques complemented by a time series analysis. Overall our results highlight a stronger convergence pattern in the EU. Fiscal discipline leading to a fast convergence of deficit/GDP ratio over the nineties, markedly weakens in the following decade. Nonetheless, after the euro debut a pronounced convergence in total revenue and total government spending emerges, with different patterns characterizing each expenditure component. Despite this evidence of fiscal harmonization, European treaties failed to attract countries towards a common share of government debt.