Fiscal Discipline and Social Capital: Evidence from Europe during the Last Economic Crisis and Recovery

Abstract

The purpose of the current paper is to investigate the possible relationship between fiscal discipline and social capital in EU member states during the last economic crisis and recovery, along with the assessment of the initial welfare effects of fiscal stimulus measures. Preliminary results show that institutional trust and general trust as social capital indicators associate positively with the extent of fiscal stimulus, while governance indicators show negative correlations. However, the significance of these results is relatively low and the subject needs thus further investigation. Further, it appeared that fiscal stimulus had weak positive effect on short-term recovery of GDP and employment, but not on medium-term GDP growth potential.