Cyclical and Structural Deficits on the Road to Accession: Fiscal Rules for an Enlarged European Union
AbstractThe Paper is one of the first attempts to compute cyclical and structural deficits for a set of countries candidate to accession to the EU. Three main results are derived: first, the high deficits observed in candidate countries in recent years have a structural nature. Second, the fiscal stance has been pro-cyclical in candidate countries. Finally, because of higher volatility of output in these countries, the risks of surpassing the 3% budget limit that applies to all members of the EU are much higher for them. Without changing existing rules in the European Union, it is likely that candidate countries will have to undertake costly and inefficient adjustments of the last minute. Recent proposals by the European Commission would improve matters for candidate countries, without however solving some of their major potential difficulties. The Paper suggests a new fiscal rule for an enlarged European Union, which is consistent with the philosophy of the Stability and growth Pact but focuses on ex ante limits to expenditure. Such a rule would imply that in periods of growth above trend, countries are forced to run budget surplus, while in periods of economic slack they will run deficits. The rule is fully consistent with the theory of optimal tax smoothing and would, at the same time, strengthen fiscal discipline.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3672.
Date of creation: Dec 2002
Date of revision:
Contact details of provider:
Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- P35 - Economic Systems - - Socialist Institutions and Their Transitions - - - Public Finance
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-02-18 (All new papers)
- NEP-EEC-2003-02-18 (European Economics)
- NEP-MAC-2003-02-18 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marco BUTI & Daniele FRANCO & Hedwig ONGENA, 1997.
"Budgeetary Policies during Recessions : Retrospective Application of the Stability and Growth Pact” to the Post-War Period,"
Discussion Papers (REL - Recherches Economiques de Louvain)
1997041, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- M. Buti & D. Franco & H. Ongena, 1997. "Budgetary Policies during Recessions - Retrospective Application of the "Stability and Growth Pact" to the Post-War Period," European Economy - Economic Papers 121, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
- András Simon & Zsolt Darvas, 2000. "Potential Output and Foreign Trade in Small Open Economies," MNB Working Papers 2000/9, Magyar Nemzeti Bank (the central bank of Hungary).
- Barro, Robert J., 1979.
"On the Determination of the Public Debt,"
3451400, Harvard University Department of Economics.
- André Sapir & Marco Buti, 1998. "Economic policy in EMU," ULB Institutional Repository 2013/8078, ULB -- Universite Libre de Bruxelles.
- Attila Csajbók (ed.) & Ágnes Csermely (ed.), 2002. "Adopting the euro in Hungary: expected costs, benefits and timing," MNB Occasional Papers 2002/24, Magyar Nemzeti Bank (the central bank of Hungary).
- Easterly, William & Rebelo, Sérgio, 1994.
"Fiscal Policy and Economic Growth: An Empirical Investigation,"
CEPR Discussion Papers
885, C.E.P.R. Discussion Papers.
- Easterly, William & Rebelo, Sergio, 1993. "Fiscal policy and economic growth: An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 417-458, December.
- William Easterly & Sergio Rebelo, 1994. "Fiscal Policy and Economic Growth: An Empirical Investigation," NBER Working Papers 4499, National Bureau of Economic Research, Inc.
- Buiter, Willem H & Grafe, Clemens, 2002. "Patching up the Pact: some Suggestions for Enhancing Fiscal Sustainability and Macroeconomic Stability in an Enlarged European Union," CEPR Discussion Papers 3496, C.E.P.R. Discussion Papers.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.