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New Evidence on the Effectiveness of Europe's Fiscal Restrictions

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  • Marcos Poplawski Ribeiro

Abstract

This paper investigates the past effectiveness of the Maastricht Treaty (MT) and Stability and Growth Pact (SGP) in disciplining fiscal policy in the Euro zone. We estimate fiscal reaction functions for a panel of 11 members of the Euro zone including the more recent period of the reformed SGP, and compare them with fiscal responses from other “industrialized” OECD countries. Our main finding is that in contrast with the MT, the SGP has been ineffective in tackling excessive deficits in the Euro zone. Moreover, it has also not induced a countercyclical behavior of the fiscal authorities in the region. These results evince the need for reforms in Europe’s fiscal restrictions in order to restore their credibility.

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Bibliographic Info

Paper provided by CEPII research center in its series Working Papers with number 2009-13.

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Date of creation: Jul 2009
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Handle: RePEc:cii:cepidt:2009-13

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Keywords: Fiscal restrictions; panel data; Maastricht Treaty; stability and growth pact;

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References

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  1. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
  2. Jean Pisani-Ferry, 2005. "Fiscal policy in EMU: towards a sustainability and growth pact," Working Papers 52, Bruegel.
  3. Agnès Bénassy-Quéré & Marcos Poplawski Ribeiro, 2009. "Bad Weather for the Stability and Growth Pact," La Lettre du CEPII, CEPII research center, issue 286.
  4. Andrew Hughes Hallett & John Lewis, 2005. "Fiscal Discipline before and after EMU - Permanent Weight Loss or Crash Diet?," Vanderbilt University Department of Economics Working Papers 0516, Vanderbilt University Department of Economics.
  5. Beetsma, Roel & Ribeiro, Marcos Poplawski & Schabert, Andreas, 2008. "A Comparison of Debt and Primary-deficit Constraints," CEPR Discussion Papers 6897, C.E.P.R. Discussion Papers.
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Cited by:
  1. Victor Duarte Lledo & Marcos Poplawski-Ribeiro, 2011. "Fiscal Policy Implementation in Sub-Saharan Africa," IMF Working Papers 11/172, International Monetary Fund.
  2. Agustín S. Bénétrix & Philip R. Lane, 2012. "Fiscal Cyclicality and EMU," The Institute for International Integration Studies Discussion Paper Series iiisdp403, IIIS.
  3. Jacques Melitz & Julia Darby, 2011. "Joint Estimates of Automatic and Discretionary Fiscal Policy: The OECD 1981-2003," Working Papers 2011-11, Centre de Recherche en Economie et Statistique.
  4. International Monetary Fund, 2011. "Fiscal Expectations Under the Stability and Growth Pact: Evidence from Survey Data," IMF Working Papers 11/48, International Monetary Fund.
  5. Julia Darby & Jacques Melitz, 2011. "Joint estimates of automatic and discretionary fiscal policy for the OECD," Working Papers 1122, University of Strathclyde Business School, Department of Economics.
  6. Marcos Poplawski-Ribeiro & Jan-Christoph Rülke, 2010. "Fiscal Expectations on the Stability and Growth Pact: Evidence from Survey Data," Working Papers 2010-05, CEPII research center.

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