Comparative economic analysis vs moralistic tales: an application to the myth of frugality

Abstract

AbstractIn 2020 the European Union designed a stimulus programme aimed at supporting Member States’ economic recovery following the outbreak of the Covid-19 pandemic. Several countries were reluctant to endorse the programme rejecting the idea of fiscal expansion as a means of cushioning the impact of the health crisis. They dubbed themselves ‘the frugals’, a term extensively used in media coverage from then on. The narrative of thrifty versus profligate economies has been a leitmotiv in policy negotiations at the EU level despite the fact that no economic school of thought defines macroeconomic characteristics in terms of frugality or wastefulness. In this paper we analyze to what extent the economic behavior of European countries can be characterized along those lines by assessing observable economic indicators related to public and private indebtedness, fiscal income and spending, characteristics of the welfare state, the labor market and contributions to economic growth from internal and external demand. We draw from three main theoretical approaches in order to choose meaningful indicators for comparing different economic structures.Keywords: Comparative economicsEuropean Unionfrugalsmediterranean countrieswelfare state Disclosure statementNo potential conflict of interest was reported by the author(s).Notes1 For more details on the characteristics of NGEU see Freier et al. (Citation2022).2 For a detailed analysis of the evolution of these paradigms, see Cárdenas, Herrero, and Rial (Citation2020).3 Member States' operating budgetary balances are calculated using data on the allocation of EU expenditure by Member State and on Member States' contributions to the EU Budget. The operating budgetary balance of each Member State is calculated as the difference between the operating expenditure (excluding administration) allocated to each Member State and the adjusted 'national contribution' of each Member State as follows: OBBi=: TAEi−: H5i−: TNCi·TAEEU−H5EUTNCEU. Where: OBBi = operating budgetary balance of Member State, TAEi = total allocated expenditure of Member State, H5i = administrative expenditure allocated to Member State, TNCi = total national contribution of Member State.4 Italy is the only Southern country to maintain a positive contribution in the period under analysis.5 The euro crisis also dubbed the “European debt crisis” refers to the period comprised between 2009 and 2010, when interest rates for public debt rose sharply for Southern countries in a context of financial fragility, bank bailouts and speculative positions looking to take advantage of the institutional hurdles in the EU.6 This feature applies to Spain, Portugal and Greece, but not Italy.7 During the last decades, the reforms of the welfare state have not focused solely on spending. There are voices pressing to modify its physiognomy by implementing a model closer to that of the US, replaceing universal rights with mean-tested benefits, shifting welfare production from the public to the private sector and financing the wellfare state through taxes on labor instead of taxes on capital (Palley Citation2020).8 The use of the conventional threshold equal to 60% of the median caused the records on the evolution of poverty to be questioned for several years. As an example, Missos (Citation2021) points out that if the real thresholds of 2009 had remained fixed, in 2014 51.6% of Greece’s population would have fallen below the poverty line.Additional informationFundingThis work was supported by Proyectos de Generación de Conocimiento 2022.