Has the Stability and Growth Pact stabilised? Evidence from a panel of 12 European countries and some implications for the reform of the Pact
AbstractVEver since its inception EMU has been subject to controversy. The fiscal policy rules embedded in the Treaty on European Union, and clarified in the Stability and Growth Pact (SGP), are probably the most contentious. The SGP is being accused of being too rigid and of forcing pro-cyclicality in fiscal policy. We test the impact of the SGP rules on the cyclical properties of fiscal policy for a panel of 12 European countries. We conclude that contrary to what might have been expected the euro fiscal rules have reinforced the counter-cyclicality of fiscal policy. However, the results also show that the SGP is not being applied symmetrically over the cycle, leading to insufficient fiscal consolidation during economic upswings. This explains the recent difficulties of Portugal, Germany and France in complying with SGP requirements. Based on these conclusions we argue for the creation of independent national technical committees that would define an appropriate deficit target on an annual basis.
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Bibliographic InfoPaper provided by GEMF - Faculdade de Economia, Universidade de Coimbra in its series GEMF Working Papers with number 2005-02.
Length: 23 pages
Date of creation: 2005
Date of revision:
Fiscal policy; stabilisation; EMU; Stability; Growth Pact reform;
Other versions of this item:
- Carlos José Fonseca Marinheiro, 2005. "Has the Stability and Growth Pact stabilised? Evidence from a panel of 12 European countries and some implications for the reform of the Pact," Working Papers de Economia (Economics Working Papers) 31, Departamento de Economia, Gestão e Engenharia Industrial, Universidade de Aveiro.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
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