The European Fiscal Compact: A Counterfactual Assessment
AbstractFaced with the global financial crisis and an increasingly worrisome sovereign-debt crisis, the Eurozone countries are rethinking their fiscal governance. This paper discusses the different reforms and subsequent fiscal rules which have emerged since 2011. It assesses the impact of fiscal rules on the output gap and inflation rate of three representative countries of the Eurozone. By means of a counterfactual, the rules based upon their macroeconomic outcomes are ranked. The new debt reduction rule would certainly lead to lower debt levels, hence to larger fiscal margins for maneuver in the future but, in steep contrast with the golden rule of public finance, it would be very costly to implement as the requirement to enforce a substantial consolidation in the short run would be considerably higher than that of a golden rule and would worsen the output gap and inflation rate. The cap on the cyclically adjusted deficit also leads to unfavorable outcomes whereas the Maastricht status quo, limiting overall public deficit, would be a “second best” behind the golden rule of public finance.
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Bibliographic InfoArticle provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.
Volume (Year): 27 (2012)
Issue (Month): ()
EMU; Fiscal compact; Stability and Growth Pact; Fiscal rules; Counterfactual;
Find related papers by JEL classification:
- C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
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- Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2013.
"An assessment of the Stability and Growth Pact reform in a small-scale macro-framework,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 37(8), pages 1567-1580.
- Jerome Creel & Paul Hubert & Francesco Saraceno, 2012. "An assessment of Stability and Growth Pact Reform Proposals in a Small-Scale Macro Framework," Documents de Travail de l'OFCE 2012-04, Observatoire Francais des Conjonctures Economiques (OFCE).
- Jérôme Creel & Paul Hubert & Francesco Saraceno,, 2013. "Assessing future sustainability of french public finances," Documents de Travail de l'OFCE 2013-11, Observatoire Francais des Conjonctures Economiques (OFCE).
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