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The stability pact pains : a forward-looking assessment of the reform debate

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Author Info
Buti, Marco
Eijffinger, Sylvester
Franco, Daniele (Tilburg University, Center for Economic Research)

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Abstract

The Stability and Growth Pact has been under fire ever since it was born. But is the Pact a flawed fiscal rule? Against established criteria for an ideal fiscal rule, its design and compliance mechanisms show strengths and weaknesses. The latter tend to reflect tradeoffs typical of supra-national arrangements. In the end, only a higher degree of fiscal integration would remove the inflexibility inherent in the recourse to predefined budgetary rules. No alternative solution put forward in the literature appears clearly superior. This does not mean that the original Pact of 1997 could not be improved. The debate on the SGP has shown that any reform should aim at overcoming the excessive uniformity of the rules, improving their transparency, correcting pro-cyclicality and strengthening enforcement. The reform of the Pact agreed in 2005 moves in this direction but leaves open a number of issues.

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Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 101.

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Date of creation: 2005
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Handle: RePEc:dgr:kubcen:2005101

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Related research
Keywords: fiscal rules Economic and Monetary Union 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
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H6 - Public Economics - - National Budget, Deficit, and Debt
H7 - Public Economics - - State and Local Government; Intergovernmental Relations

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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. Ludger Schuknecht, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 421, European Central Bank. [Downloadable!]
  2. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Economics Department. [Downloadable!]
  3. 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)
  4. 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. [Downloadable!] (restricted)
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  5. Assaf Razin & Efraim Sadka, 2002. "The Stability and Growth Pact as an Impediment to Privatizing Social Security," NBER Working Papers 9278, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Peter S. Heller & Sanjeev Gupta, 2002. "More Aid—Making It Work for the Poor," World Economics, World Economics, NTC Economic & Financial Publishing, PO Box 69, Henley-on-Thames, Oxfordshire, United Kingdom, RG9 1GB, vol. 3(4), pages 131-146, October. [Downloadable!]
  8. Christopher Allsopp & Michael J. Artis, 2003. "The Assessment: EMU, Four Years On," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 1-29.
  9. von Hagen, Jürgen & Wolff, Guntram B., 2004. "What do deficits tell us about debt? : Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series 1: Economic Studies 2004,38, Deutsche Bundesbank, Research Centre. [Downloadable!]
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  10. Buti, Marco & Eijffinger, Sylvester C W & Franco, Daniele, 2003. "Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?," CEPR Discussion Papers 3692, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  11. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Ludger Schuknecht & Vito Tanzi, 2005. "Reforming public expenditure in industrialised countries - are there trade-offs?," Working Paper Series 435, European Central Bank. [Downloadable!]
  13. Rolf Strauch & Mark Hallerberg & Jürgen von Hagen, 2004. "Budgetary Forecasts in Europe – The Track Record of Stability and Convergence Programmes," Economic Working Papers at Centro de Estudios Andaluces E2004/42, Centro de Estudios Andaluces. [Downloadable!]
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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. Buti, Marco & Sapir, André, 2006. "Fiscal Policy in Europe: The Past and Future of EMU Rules from the Perspective of Musgrave and Buchanan," CEPR Discussion Papers 5830, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Óscar Afonso & Rui Henrique Alves, 2006. "“To Deficit or Not to Deficit”: Should European Fiscal Rules Differ Among Countries?," FEP Working Papers 219, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
  3. Rui Henrique Alves & Óscar Afonso, 2006. "The “New” Stability and Growth Pact: More Flexible, Less Stupid?," FEP Working Papers 218, Universidade do Porto, Faculdade de Economia do Porto. [Downloadable!]
    Other versions:
  4. Jean-Paul Fitoussi & Francesco Saraceno, 2007. "Fiscal Discipline as a Social Norm: The European Stability Pact," Documents de Travail de l'OFCE 2007-22, Observatoire Francais des Conjonctures Economiques (OFCE). [Downloadable!]
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