Our article @INETeconomics shows why the technical foundations of the EU fiscal rules are politically important:
ineteconomics.org/perspectives/b…
Based on our study „The power of economic models“ (doi.org/10.1093/ser/mw…), we respond to the European Commission’s economists. Thread /1
ineteconomics.org/perspectives/b…
Based on our study „The power of economic models“ (doi.org/10.1093/ser/mw…), we respond to the European Commission’s economists. Thread /1
We analyse aspects around the "campaign against nonsense output gaps" from a new perspective. We examine the basic assumptions and technical developments of the model underlying the calculation of the output gap, which plays an important role in the EU’s fiscal framework /2
Fiscal policy decisions in the EU in recent years have often been coined by technical details and, as a consequence, seemingly innocent technical assumptions have become objects of political demands /3
The neoclassical way of thinking inscribed in the Commission's model determines the corresponding interpretations of the macroeconomic situation and shapes policy suggestions /4
Leading economists of the European Commission (Buti et al. 2019) have defended the model used to calculate the output gap and the fiscal control indicator derived from it ("structural" budget balance) against criticism from the "campaign against nonsense output gaps" /5
Based on our recent study ("The power of economic models: The case of the EU's fiscal regulation framework"), we analyse how and why the Commission’s economists publicly defend the authority of their model-based economic expertise:
doi.org/10.1093/ser/mw… /6
doi.org/10.1093/ser/mw… /6
With their public defence of their model-based economic expertise, Buti et al. (2019) try to consolidate their authority in the political process of negotiating with representatives of EU member states. /7
Buti et al. (2019) emphasise the "jointly agreed" methodology to immunise against criticism, but they ignore that the degree to which an EU Member actually perceives the underlying methodology as being “commonly owned” correlates with national subjective interests /8
Buti et al. (2019) do not address the central criticism of those studies to which the "campaign against nonsense output gaps" refers: they ignore that the estimates of potential output are regularly adjusted downwards with actual economic growth due to methodological problems. /9
Questions open for debate: Should Europe continue to have a set of fiscal rules whose technical foundations even some EU finance ministers can hardly understand comprehensively, let alone explain to their voters when it comes to justifying their fiscal policy decisions? /10
Should there be a set of fiscal rules in which technical expertise has a decisive influence on political processes, but which is difficult for a general public to understand, raising problems of democratic legitimacy? /end
