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Ten Commandments for a Fiscal Rule in the E(M)U

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  • Willem H. Buiter

Abstract

Fiscal rules in a monetary union should (1) be simple; (2) ensure the solvency of the state; (3) relate to the consolidated general government and central bank; (4) be neutral as regards the size of the public sector; (5) avoid pro-cyclical behaviour of the fiscal policy instruments; (6) also make sense in the long run; (7) allow for important differences in economic structure and initial conditions; (8) aggregate into behaviour that makes sense at the level of the union as a whole; (9) be credible; and (10) be enforced impartially and consistently. The paper reviews the rules of the Stability and Growth Pact, the UK's golden rule and sustainable-investment rule, and Buiter and Grafe's permanent-balance rule from the perspective of how well they meet these ten criteria. Copyright 2003, Oxford University Press.

Suggested Citation

  • Willem H. Buiter, 2003. "Ten Commandments for a Fiscal Rule in the E(M)U," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 19(1), pages 84-99.
    • Handle: RePEc:oup:oxford:v:19:y:2003:i:1:p:84-99
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