The power of economic models: The case of the EU’s fiscal regulation framework

Abstract

This article is concerned with the impact of economic ideas on political processes and decision-making. We argue that economic models can serve as a transmission device between economic paradigms and policy programs, which allow actors drawing on the model to exercise power in decision-making. We illustrate this argument by focusing on the European Commission’s ‘potential output’ model, which represents a core pillar of EU fiscal governance as it provides estimates of ‘structural deficits’ for evaluating fiscal policies. We combine an analysis of the history and content of the model at stake with insights derived from policy documents, legal provisions, speeches and interviews. Our findings imply that economic models (a) allow for exerting power only under specific conditions, (b) align paradigmatic priors with policy proposals and (c) may constitute mutual feedback loops where political decisions are coined by technicalities and, as a consequence, seemingly innocent technical assumptions become objects of political demands.