FINANCIAL INTEGRATION AND FISCAL POLICY, IMPLICATIONS ON ECONOMIC GROWTH

Abstract

This paper analyzes the relationship between financial integration and fiscal policy, presenting arguments that strengthen the idea that in the context of financial integration, influencing economic growth also requires the consolidation of fiscal policy and the stability of public finances. Essentially, in our analysis, we aim to build research that emphasizes the importance of the interplay between the variables involved, with the objective of achieving economic growth. Our results reveal a significant relationship between the three variables: financial integration, fiscal policy, and economic growth. International financial integration has increased the importance of financial sector policies. Additionally, we find that financial integration affects the composition of government debt and enhances risk-sharing by increasing the share of foreign debt in the total. Therefore, countries need strong macro-prudential policy frameworks. For our analysis, we retrieved data from Eurostat and the World Bank, including the EU 28-member states over the 2000-2014 period.