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The Myth (or Folly) of the 3 Percent Deficit/GDP Maastricht 'Parameter.'

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  • Pasinetti, Luigi L
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    Abstract

    A relation is presented defining the boundary, algebraically and geometrically, to the sustainability area of public finance. The relation (and area) involve three magnitudes: deficit/GDP, debt/GDP, and rate of growth. It is shown that the parameters stated in the famous Annex to the Maastricht Treaty (60 percent for the debt/GDP ratio and 3 percent for the deficit/GDP ratio) represent only one particular point on the above mentioned boundary relation to the sustainability area. There exists an infinite number of other points sharing the same characteristics. On the basis of the OECD data referring to the end of 1996, it is shown that all major European countries find themselves outside the sustainability area, except Belgium and Italy, i.e., exactly the opposite of what is widely believed to be the case in current discussions. Copyright 1998 by Oxford University Press.

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    Bibliographic Info

    Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

    Volume (Year): 22 (1998)
    Issue (Month): 1 (January)
    Pages: 103-16

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    Handle: RePEc:oup:cambje:v:22:y:1998:i:1:p:103-16

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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Debts and deficits: why a string of deficits does not necessarily spell the end of the world
      by Graham White, Associate Professor, School of Economics at University of Sydney in The Conversation on 2013-05-09 02:35:25
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    Cited by:
    1. Pica, Federico & Villani, Salvatore, 2012. "Debito, Mezzogiorno e sviluppo. A trivial exercise
      [Sovereign Debt Sustainability, Mezzogiorno and Economic Growth. A Trivial Exercise]
      ," MPRA Paper 43199, University Library of Munich, Germany, revised 28 Nov 2012.
    2. Kurt W. Rothschild, 2001. "Ach Europa: Einige kritische polit-ökonomische Notizen zum Thema "Europa"," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 2(1), pages 1-14, 02.
    3. Kowalski, Tadeusz, 2012. "The economic and monetary union countries vs. the global crisis," MPRA Paper 37942, University Library of Munich, Germany.

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