Do Fiscal Constraints Actually Work in the EU

In the current troubled times for the European economies, the role of numerical fiscal rules as fiscal constraints gets more and more attention, both in scientific research and in public debate. In this regard, it was our objective to analyze the impact of the balance budget rule and its coverage degree on public debt and deficit levels in EU countries. Through our conducted analyses we observed that although a stronger rule conducts to an increase in government’s debt levels, a higher degree of coverage of the rule conducts to a strong reduction in debt levels. On the other hand, a stronger rule has a positive impact on deficit levels, although a higher degree of coverage has a strong negative impact. Considering our main findings, we submit to the general point of view that constructing and imposing numerical rules as fiscal constraints is one of the most difficult tasks of policy-makers these days.