Determinants of budget deficits in Europe: The role and relations of fiscal rules, fiscal councils, creative accounting and the Euro

We analyze the determinants of the budget balance of 27 EU countries from 1991 to 2011 with a panel approach. Our focus is on the effectiveness of fiscal rules and fiscal councils as well as the impact of EMU membership and creative accounting, approximated by stock-flow-adjustments. We especially contribute to the literature by analyzing the joint influence of fiscal rules with fiscal councils and stock-flow-adjustments, measured by their interaction terms. We find a significant influence for fiscal rules and stock-flow-adjustments and as well as under crisis conditions for fiscal councils. Also the interaction variables display influence.