FISCAL CONVERGENCE IN THE EUROPEAN UNION BEFORE THE CRISIS

This article investigates fiscal convergence attained by EU countries in the period 1991-2008, by employing beta- and sigma-convergence techniques complemented by a time series analysis. Overall our results highlight a distinctive convergence pattern in the European Union. Fiscal discipline leading to a fast convergence of deficit/GDP ratio over the 1990s markedly weakened 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 toward a common share of government debt over GDP.