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The Economic Importance of Fiscal Rules

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Author Info
Artis, Michael J
Onorante, Luca

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Abstract

The paper provides an assessment of the effect of the recent revision of the Stability and Growth Pact (SGP) on the European economies. A set of structural VARs, one for each Eurozone country, is estimated. The estimated models are then used to assess the possible effect of alternative sets of fiscal rules, with particular attention to the SGP in its old and reformed versions. The results suggest that fiscal policy has had in the past a limited smoothing effect on the cycle and therefore the cost of the old rules in the “corrective” arm of the Pact was also limited. As for the reform of the Pact the analysis is overall supportive of the new country-specific Medium term Objectives. The modified rules of the excessive deficit procedure are likely to give governments only a limited extra leeway to reduce the variability of the cycle.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5684.

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Date of creation: May 2006
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Handle: RePEc:cpr:ceprdp:5684

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Related research
Keywords: European Monetary Union; fiscal-monetary interactions; Stability and Growth Pact;

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
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

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References listed on IDEAS
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.:
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    Other versions:
  2. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1419-1447, November. [Downloadable!] (restricted)
    Other versions:
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    Other versions:
  6. Favero, Carlo A, 2002. "How do European Monetary and Fiscal Authorities Behave?," CEPR Discussion Papers 3426, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Blackwell Publishing, vol. 40(5), pages 823-848, December. [Downloadable!] (restricted)
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  15. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall. [Downloadable!]
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  17. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February. [Downloadable!] (restricted)
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  19. Roberto Perotti, 2004. "Estimating the effects of fiscal policy in OECD countries," Working Papers 276, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
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  20. Olivier Blanchard & Roberto Perotti, 1999. "An Empirical Characterization of the Dynamic Effects of Changes in Government Spending and Taxes on Output," NBER Working Papers 7269, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Artis, Michael J & Winkler, Bernhard, 1997. "The Stability Pact: Safeguarding the Credibility of the European Central Bank," CEPR Discussion Papers 1688, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, 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.)

  1. Ratto Marco & Roeger Werner & Veld Jan, 2006. "Fiscal Policy in an estimated open-economy model for the EURO area," Computing in Economics and Finance 2006 43, Society for Computational Economics. [Downloadable!]
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