Convergence of fiscal policies in EMU: a unit-root tests analysis with structural break

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