Convergence of fiscal policies in EMU: a unit root test with structural break

International audienceThe aim of this study is first to determine whether the fiscal policy among<br />EMU countries have converged and then to identify the source of the<br />convergence process. The convergence of fiscal policies was at the core<br />of the fiscal criteria imposed by the Maastricht treaty but it may also<br />have resulted from the economic and financial integration that preceded<br />the Treaty. Some unit-root tests are implemented on the cross-country<br />variance for various fiscal policy indicators where a break in the intercept<br />and the trend is allowed to catch whether the convergence is due to institutional<br />arrangements or to economic integration. We conclude that the<br />fiscal position has converged but the break date, selected before 1992,<br />indicates that the convergence process preceded the Maastricht treaty.<br />Considering the fiscal receipts, the hypothesis of convergence is accepted<br />only when they are adjusted from the cyclical component. The convergence<br />of fiscal expenditures is finally clearly rejected