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Fiscal Policy in Europe: The Past and Future of EMU Rules from the Perspective of Musgrave and Buchanan

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  • Buti, Marco
  • Sapir, André

Abstract

During the ‘Golden Age’ that lasted until the mid-1970s, Europe witnessed a "public finance" phase, when the three sides of Musgrave’s triangle - allocative efficiency, redistribution and cyclical stabilisation - seemed to reinforce one another. EMU's fiscal rules - embodied in the Maastricht Treaty and the Stability and Growth Pact - can be regarded as the attempt by European governments to overcome the subsequent "public choice" phase à la Buchanan which was characterised by increasing budget deficits and trade offs between allocative efficiency and redistribution. The original Stability Pact delivered only partly. A rigorous enforcement of the reformed Pact will depend on two conditions: the renewed ownership of the rules by key players and the relative weight of the perceived negative externalities of fiscal misbehaviour versus the political costs of attempting to limit the partner countries’ room for manoeuvre.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5830.

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Date of creation: Sep 2006
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Handle: RePEc:cpr:ceprdp:5830

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Keywords: EMU; fiscal policy; Stability Pact;

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References

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  1. Sapir, Andre & Aghion, Philippe & Bertola, Giuseppe & Hellwig, Martin & Pisani-Ferry, Jean & Rosati, Dariusz & Vinals, Jose & Wallace, Helen, 2004. "An Agenda for a Growing Europe: The Sapir Report," OUP Catalogue, Oxford University Press, number 9780199271498, July.
  2. Buti, Marco & Eijffinger, Sylvester C W & Franco, Daniele, 2005. "The Stability Pact Pains: A Forward-Looking Assessment of the Reform Debate," CEPR Discussion Papers 5216, C.E.P.R. Discussion Papers.
  3. Persson, Torsten & Tabellini , Guido, 1997. "Political Economics and Macroeconomic Policy," Seminar Papers 630, Stockholm University, Institute for International Economic Studies.
  4. Marco Buti & Paul Noord, 2004. "Fiscal Discretion and Elections in the Early Years of EMU," Journal of Common Market Studies, Wiley Blackwell, vol. 42(4), pages 737-756, November.
  5. Benoiˆt Coeure´ & Jean Pisani-Ferry, 2005. "Fiscal Policy in Emu: Towards a Sustainability and Growth Pact?," Oxford Review of Economic Policy, Oxford University Press, vol. 21(4), pages 598-617, Winter.
  6. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR & CES & MSH, vol. 21(47), pages 491-534, 07.
  7. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2003. "Revisiting the stability and growth pact: Grand design or internal adjustment?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152958, Tilburg University.
  8. Orban, Gabor & Szapary, Gyorgy, 2004. "The Stability and Growth Pact from the perspective of the new member states," Journal of Policy Modeling, Elsevier, vol. 26(7), pages 839-864, October.
  9. Buiter, Willem H, 2005. "The 'Sense and Nonsense of Maastricht' Revisited: What Have We Learnt About Stabilization In EMU?," CEPR Discussion Papers 5405, C.E.P.R. Discussion Papers.
  10. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
  11. James M. Buchanan & Richard A. Musgrave, 1999. "Public Finance and Public Choice: Two Contrasting Visions of the State," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262024624.
  12. Jean Pisani-Ferry, 2005. "Fiscal policy in EMU: towards a sustainability and growth pact," Working Papers 52, Bruegel.
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Cited by:
  1. Christian Fahrholz & Cezary Wojcik, 2010. "The Bail-Out! Positive political economics of Greek-type crises in the EMU," CASE Network Studies and Analyses 413, CASE-Center for Social and Economic Research.
  2. Staehr, Karsten, 2008. "Fiscal policies and business cycles in an enlarged euro area," Economic Systems, Elsevier, vol. 32(1), pages 46-69, March.
  3. Karsten Staehr, 2007. "Fiscal Policies and Business Cycles in an Enlarged Euro Area," CESifo Working Paper Series 1933, CESifo Group Munich.
  4. Jacopo Cimadomo, 2007. "Fiscal Policy in Real Time," Working Papers 2007-10, CEPII research center.
  5. Karsten Staehr, 2007. "Fiscal policies and business cycles in an enlarged euro area," Bank of Estonia Working Papers 2007-03, Bank of Estonia, revised 08 Mar 2007.

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