The shape of the budget. European countries’ public expenditure through crises

Budget policy exemplifies the Punctuated Equilibrium Theory, where changes are predominantly hyper-incremental, with rare instances of extreme shifts triggered by crises. It is well established that domestic institutional frictions and the cognitive limitations of decision-makers contribute to the punctuated pattern of budget changes. However, with its expanding powers, the European Union has become a key player in monitoring and shaping Member States’ budget policies and providing instruments to manage crises. This study examines the extent of punctuated changes in European countries’ budget policies over a period (1995–2022) marked by profound national political transformations, supranational developments, and external shocks. The findings confirm that budget policies across all European countries exhibit a punctuated pattern. Using a quantile regression model, which estimates the impact of domestic and supranational frictions, crises, and economic indicators across different quantiles of the budget change distribution, this work highlights the positive role of multilevel governance in mitigating budget punctuations. National political and institutional variables primarily explain minor and moderate budget adjustments (both positive and negative) and major expansions but only faintly elucidate severe budget cuts. While the Eurozone crisis had a clear impact on budgetary changes, driving significant reductions, the role of the COVID-19 pandemic appears negligible.