Multi-level governance in fiscal consolidation and stabilisation

Schelkle, Waltraud, and Mabbett, Deborah. (2007) Multi-level governance in fiscal consolidation and stabilisation. In: UNSPECIFIED, Montreal, Canada. (Unpublished)

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Abstract

Economists discuss multi-level governance in terms of fiscal federalism, namely as a problem of assigning fiscal functions optimally to different tiers of government. This literature assumes that the jurisdiction of the monetary authority coincides with that of the central fiscal authority. However, EMU implied for each member state that national fiscal policy became devolved relative to supranational monetary policy. In several member states, this ‘upward’ devolution of stabilisation came on top of fiscal decentralisation in the conventional sense. In the run-up to EMU, and even earlier, governments tended to decentralise public finances. The question this paper asks is how this dual trend of devolution relates to the goals of the EMU fiscal framework and its operation in practice. In this paper, we argue that laboratory fiscal federalism is a more appropriate framework than functional public finance or constitutional public choice for understanding fiscal devolution in EMU. We explore to what extent national governments have used innovations in upward and downward devolution to get better control over their budgets, using EMU as a lever. We also ask what this potential gain in budgetary control and consolidation has meant for national stabilisation in EMU.

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