Citation:

Dimitra Mitsi. "Towards A Hybrid Fiscal Union: Quantifying The Role Of Institutional Quality In EU Fiscal Governance" International Research Journal of Economics and Management Studies, Vol. 4, No. 7, pp. 214-225, 2025.

Abstract:

This paper quantitatively evaluates the feasibility and macroeconomic implications of transitioning toward a hybrid fiscal union within the European Union (EU), wherein supranational debt anchors are combined with national institutional differentiation. Leveraging an unbalanced panel of 27 EU member states from 1995 to 2023, we apply a dual empirical strategy: a dynamic System GMM estimator to account for endogeneity and persistence in fiscal-growth dynamics, and a Difference-in-Differences (DiD) framework to capture causal effects of institutional reform. Our results reveal that the effectiveness of a common debt anchor—specifically in the 80–90% debt-to-GDP is significantly conditioned by domestic institutional quality. EU countries with high-quality fiscal institutions experience an average 0.3 percentage point increase in GDP growth and a 25-basis-point decline in bond spreads following the adoption of fiscal anchor rules. Conversely, in low-institutional-capacity settings, fiscal rules yield negligible macroeconomic gains. These findings provide empirical support for a hybrid fiscal architecture, in which rule-based convergence is contingent upon governance-linked compliance and institutional heterogeneity.

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Keywords:

Hybrid Fiscal Union, Institutional Quality, EU Governance, Fiscal Rules, Debt Anchors.