EMU: Optimal Fiscal Strategy and the Punishment Effectiveness
Abstract
This paper investigates the ability of the Stability and Growth Pact to prevent governments in the "euro zone" from running excessive budget deficits. It is shown that in a static two-country game, the Pareto-optimal strategy of no excess deficits cannot be systematically enforced, whatever the toughness of the sanction under the Pact. However, in a multiperiod setting, the Pareto-optimal configuration of no excess deficits would prevail even if no sanctions were applied to deviant governments. In this case, neither a heavily punitive SGP, nor a centralized budget appears to be helpful in the EMU context. Copyright 2001 by Blackwell Publishing Ltd.Download Info
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Bibliographic Info
Article provided by Wiley Blackwell in its journal Review of International Economics.
Volume (Year): 9 (2001)
Issue (Month): 3 (August)
Pages: 494-504
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Handle: RePEc:bla:reviec:v:9:y:2001:i:3:p:494-504
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Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Thierry Warin, 2004. "Should Europe Get Rid of the Stability and Growth Pact?," Middlebury College Working Paper Series 0415, Middlebury College, Department of Economics.
- Thierry Warin, 2005. "Stability and Growth Pact: An Index to Trigger an Early Warning Earlier?," Middlebury College Working Paper Series 0502, Middlebury College, Department of Economics.
- Thierry Warin, 2005. "The Hidden Structural Features of the Fiscal Rule: A European Saga," International Advances in Economic Research, Springer, vol. 11(1), pages 29-38, March.
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