Fiscal policy, growth and entrepreneurship in the EMU

ABSTRACT

The EU sets strict fiscal criteria for its member states and has introduced initiatives to foster entrepreneurship, competitiveness, and growth. Following the financial crisis, which affected certain Eurozone countries, the EU updated its fiscal rules, establishing a stricter framework. The EU is founded on the principle that fiscal stability facilitates entrepreneurship and competitiveness. Therefore, compliance with fiscal rules improves the business environment. Nonetheless, the literature seems to be divided on this principle. One side argues that fiscal stability positively affects entrepreneurship and competitiveness. The opposing side argues that increased public debt and fiscal deficits do not ex ante affect growth rates. In this article, we attempt to evaluate the relationship between fiscal governance, entrepreneurship, and competitiveness. Descriptive statistics, panel data analysis, and ordinary least squares methods were employed to examine the relationship between fiscal governance indicators and entrepreneurship and competitiveness indicators. We used data from countries that experienced fiscal imbalance, namely Portugal, Greece, Spain, and Italy. According to the findings of our research, fiscal balance positively affected the growth rate in all cases. Yet, that current account balance, unit labor cost, and business birth rate equally affected growth rate and global entrepreneurship index in all countries cannot be supported.

KEYWORDS:

• Entrepreneurship
• competitiveness
• fiscal policy
• growth
• public debt
• Economic and Monetary Union (EMU)

Notes

1 A GEI score represents the performance of a country in terms of the quality of its entrepreneurship ecosystem (Szerb, et al., 2016) (Ács et al., 2018).

2 According to the OECD, the net financial worth of a general government sector is the total value of its financial assets minus the total value of its outstanding liabilities.

3 A rise in government expenditures on foreign goods degrades a home country's terms of trade.