Sustainability of EU public finances
AbstractWe use a policy rule framework and focus on the response of the primary surplus to accumulated public debt to test a sufficient condition for sustainability. The evidence we report suggests that sustainability was prevalent in many EU countries before Maastricht, but also that the Maastricht impulse induced the shift towards sustainability in some of them. Additionally, although a clear distinction emerges in terms of the visibility of the Maastricht stress between the euro bloc, on the one hand, and the non-euro EU countries, the US and Japan, on the other, there is no evidence of bloc differences in terms of the long term soundness of public finances. On the basis of our analysis and results, we highlight the potential policy relevance of the reaction of the primary surplus to accumulated debt in the debate on the proper balance between fiscal stabilization and discipline in EMU.
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Bibliographic InfoPaper provided by Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission in its series European Economy - Economic Papers with number 225.
Length: 30 pages
Date of creation: Apr 2005
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Stability and Growth Pact; public debt; sustainability; Maastricht; fiscal stabilization; accumulated debt; public finances; sustainability; Ballabriga; Martinez-Mongay;
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