Towards expenditure rules and fiscal sanity in the euro area
AbstractThe study demonstrates the key role of expenditure policies in explaining fiscal developments during EMU in the euro area, its three largest members and four "macro-imbalances" countries. It compares actual primary expenditure trends with those that would have prevailed if countries had followed neutral policies based on expenditure rules since the start of EMU. Moreover, the implications for debt trends are calculated. Results show that all sample countries except Germany applied expansionary expenditure policies already before the crisis. Consequently, expenditure and debt paths were much higher compared to a counterfactual neutral expenditure stance. Rule-based expenditure policies could have led to much safer fiscal positions much more in line with the EU's Stability and Growth Pact. An empirical analysis of the determinants of countries' expenditure stance confirms the need for stronger fiscal rules and institutions in the euro area.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Policy Modeling.
Volume (Year): 33 (2011)
Issue (Month): 4 (July)
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Web page: http://www.elsevier.com/locate/inca/505735
Expenditure policies Public debt Expenditure rules Sustainability Fiscal stance;
Other versions of this item:
- Schuknecht, Ludger & Hauptmeier, Sebastian & Sanchez Fuéntes, Jésus, 2011. "Towards Expenditure Rules and Fiscal Sanity in the Euro Area," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48693, Verein für Socialpolitik / German Economic Association.
- Hauptmeier, Sebastian & Sanchez Fuentes, Jesus & Schuknecht, Ludger, 2010. "Towards expenditure rules and fiscal sanity in the euro area," Working Paper Series 1266, European Central Bank.
- A10 - General Economics and Teaching - - General Economics - - - General
- A11 - General Economics and Teaching - - General Economics - - - Role of Economics; Role of Economists
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
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