Although governments vary in their fiscal records, most of the literature on fiscal governance applies a country-specific perspective. Distinguishing between weak and strong governments by their office-holding risk for non-compliance, we introduce a government-specific explanation not only for compliance but also for the Commission’s decision to enforce compliance. We argue that the Commission as the central monitoring and enforcement agency needs to consider enforcement costs when it attempts to reduce its information deficit about the reasons for non-compliance by starting an Excessive Deficit Procedure, while the violating government knows those reasons and the public reaction on a compliance conflict. Because enforcement costs increase with a stronger public support for overspending and a weaker normative evaluation of fiscal responsibility in the violating country, we show that the Commission will only take action when the enforcement costs are lower than the reputations costs for non-enforcement. Accordingly, a lower reputation of the Commission will foster overspending of other governments, while their public, in particular in countries with higher normative concerns over supranational fiscal responsibility, are more likely to reduce their support for the Eurozone.
Thomas König -University of Mannheim
Xiao Lu - University of Mannheim