Fiscal Capacity Revisited: Technopolitical Coalitions and Off‐Balance‐Sheet Instruments in Europe’s Green Industrial Policy

Key findings from this study

• The study found that off-balance-sheet financial instruments enable governments to undertake green industrial investments without formally increasing public debt under strict fiscal regimes.
• The authors demonstrate that successful implementation of these instruments requires techno-political coalitions combining technical expertise in accounting and statistics with political influence and coordination.
• The research shows that contemporary industrial policy extends beyond directing investment to strategically managing liabilities and reshaping fiscal capacity within binding constraints.

Overview

This article examines how fiscal constraints shape contemporary industrial policy in Europe, particularly regarding green growth initiatives. High debt levels and strict EU fiscal regimes compel governments to employ off-balance-sheet financial instruments. These instruments enable substantial investment without formally increasing public debt. The study argues that successful off-balance-sheet policy design requires techno-political coalitions integrating technical expertise and political influence. Such coalitions navigate complex fiscal and statistical rules while expanding fiscal capacity beyond traditional taxation and spending mechanisms.

Methods and approach

The article employs case study methodology, analyzing energy performance contracts as a focal instrument for off-balance-sheet financing in building renovations. This approach bridges industrial policy scholarship and critical finance theory. The analysis examines how technical considerations and political coordination enable policy design under fiscal constraints. The study traces the formation and operation of techno-political coalitions involved in implementing such instruments.

Results

The study demonstrates that off-balance-sheet instruments fundamentally reshape how governments exercise fiscal capacity within binding fiscal constraints. Energy performance contracts exemplify mechanisms through which renovation investments gain financing while remaining technically classified outside traditional budget categories. The successful deployment of such instruments depends critically on coordinated action between technical experts and political actors. These coalitions develop shared understanding of accounting rules and fiscal frameworks to legitimize and operationalize novel financial arrangements.

Contemporary industrial policy extends significantly beyond directing public investment toward managing liabilities strategically. Off-balance-sheet approaches allow governments to maintain investment in sustainability and green growth despite restrictive debt ceilings. The technical architecture of these instruments—their accounting treatment and statistical classification—becomes inseparable from political feasibility. This integration of finance management with industrial objectives reveals industrial policy as inherently concerned with liability restructuring and fiscal accounting.

Implications

The findings indicate that fiscal constraints do not simply constrain industrial policy but rather redirect it toward increasingly sophisticated financial engineering. Policymakers must now cultivate technical and political capabilities to design instruments that satisfy both fiscal rules and investment objectives. The reliance on techno-political coalitions suggests that successful green industrial policy depends on coordinating expertise across technical, legal, and political domains.

These mechanisms raise broader questions about accountability and transparency in public finance. Off-balance-sheet instruments technically comply with fiscal rules while potentially obscuring the actual scope of public liability and commitment. Future research should examine whether such approaches genuinely expand fiscal space or merely defer challenges in public finance management. The study highlights tensions between formal fiscal compliance and substantive economic outcomes in constrained fiscal environments.

Scope and limitations

This summary is based on the study abstract and available metadata. It does not include a full analysis of the complete paper, supplementary materials, or underlying datasets unless explicitly stated. Findings should be interpreted in the context of the original publication.