With the entry into force of the Treaty of Maastricht, EU member countries established an oversight regime of fiscal discipline, designed as a policy flanking the planned monetary union. The regime has been highly contested since its introduction and its effectiveness has been questioned in light of its poor track record of compliance. This oversight is meant to focus solely on aggregate measures such as fiscal deficits, and it should be neutral with regard to the relative importance of the budgetary components. Yet, the policies resulting from oversight have been blamed for detrimental social outcomes, especially in the aftermath of the Great Recession. The composition of national budgets carries pervasive implications, for example, for growth and inequality. Against such a backdrop, limited attention has been devoted to the distributional implications of this oversight regime.
Employing a panel of EU member countries from 1995 to 2018, we assess the extent of budgetary restructuring of public spending implemented by governments with fiscal positions noncomplying with the EU fiscal rules. Controlling for several political-economy determinants of changes of budgetary structure, our analysis uncovers substantial shifts in domestic budget compositions for countries under the Excessive Deficit Procedure within the Eurozone. This finding refutes both the presumed irrelevance of the oversight in shaping national spending and offers strong evidence of non-neutrality to budget structures as a result of powerful consolidation-driven pressures to reshape domestic spending.