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Benchmarks and Targets Under the SGP: Evaluating Safe Deficit Targets Using Nigem

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  • Ray Barrell

    (National Institute of Economic and Social Research, rbarrell@niesr.ac.uk)

  • Ian Hurst

    (National Institute of Economic and Social Research, aihurst@niesr.ac.uk)

Abstract

Fiscal pacts and automatic stabilisers are widely discussed in the policy debate. Pacts put bounds on borrowing, and the bounds have to be evaluated. We use our model, NiGEM, to set safe targets for European deficits. Although there are many issues to consider, we conclude that cyclically adjusted target deficits of I per cent of GDP would ensure that governments seldom had to borrow more than 3 per cent of GDP, especially if they stood ready to raise taxes when the deficit deteriorated either for reasons separate from cyclical developments or because supply shocks had occurred. Offsetting the automatic stabilisers when supply shocks occur is shown to help stabilise output volatility.

Suggested Citation

  • Ray Barrell & Ian Hurst, 2003. "Benchmarks and Targets Under the SGP: Evaluating Safe Deficit Targets Using Nigem," National Institute Economic Review, National Institute of Economic and Social Research, vol. 185(1), pages 54-63, July.
    • Handle: RePEc:sae:niesru:v:185:y:2003:i:1:p:54-63
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    Cited by:

    1. Martin Larch & João Nogueira Martins, 2007. "Fiscal indicators - Proceedings of the the Directorate-General for Economic and Financial Affairs Workshop held on 22 September 2006 in Brussels," European Economy - Economic Papers 2008 - 2015 297, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.

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