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Implementing the Stability and Growth Pact

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  • Roel M. W. J. Beetsma
  • Xavier Debrun

Abstract

The paper analyzes some key policy trade-offs involved in the implementation of the Stability and Growth Pact. Greater "procedural" flexibility in the Pact''s implementation may improve welfare. Procedural flexibility designates the enforcer''s room to apply judgment on underlying policies and to set a consolidation path that does not discourage high-quality measures. Budgetary opaqueness may hinder the qualitative assessment of fiscal policy; therefore, better monitoring and greater transparency would increase the benefits from procedural flexibility. Overall, a simple deficit rule with conditional procedural flexibility can contain excessive deficits, lower unproductive spending, and increase high-quality outlays.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/59.

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Length: 34
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/59

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Keywords: Fiscal reforms; Stabilization measures; Stabilization programs; Budget deficits; Structural adjustment; Economic growth; fiscal policy; fiscal framework; expenditure; excessive deficits; fiscal rules; fiscal discipline; public expenditure; tax revenues; fiscal policies; expenditures; budget constraints; budgetary impact; excessive deficit procedure; fiscal expenditure; fiscal restraint; expenditure items; public spending; fiscal expansions; fiscal behaviors; fiscal policy rules; fiscal adjustment; budget deficit; fiscal constraints; fiscal stability; budget constraint; government spending; government budget; government budget constraints; fiscal affairs; public deficits; budgetary discipline; fiscal sustainability; fiscal affairs department; national budget; fiscal institutions; fiscal architecture; fiscal deficit; spending cuts; fiscal implications; fiscal contraction; public finances; taxation; fiscal deficits; fiscal behavior; fiscal revenues;

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  1. Olivier Blanchard, 2004. "The Economic Future of Europe," NBER Working Papers 10310, National Bureau of Economic Research, Inc.
  2. Hagen, Jürgen von & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University 148, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series, European Central Bank 0421, European Central Bank.
  4. Francesca Castellani & Xavier Debrun, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund.
  5. Sibert, Anne, 1999. "Monetary Integration and Economic Reform," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(452), pages 78-92, January.
  6. Beetsma, Roel & Debrun, Xavier, 2003. "Reconciling Stability and Growth: Smart Pacts and Structural Reforms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3930, C.E.P.R. Discussion Papers.
  7. Hallett, Andrew Hughes & Jensen, Svend E. Hougaard & Richter, Christian, 2005. "The European economy at the cross roads: Structural reforms, fiscal constraints, and the Lisbon Agenda," Research in International Business and Finance, Elsevier, Elsevier, vol. 19(2), pages 229-250, June.
  8. Hughes Hallett, Andrew & Jensen, Svend E. Hougaard, 2001. "Currency unions and the incentive to reform: are market mechanisms enough?," The North American Journal of Economics and Finance, Elsevier, Elsevier, vol. 12(2), pages 139-155, July.
  9. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 57(3), pages 403-14, July.
  10. Roel M. W. J. Beetsma & Xavier Debrun, 2003. "Reconciling Stability and Growth," IMF Working Papers 03/174, International Monetary Fund.
  11. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 109(458), pages 546-71, October.
  12. Robert A. J. Dur & Ben D. Peletier & Otto H. Swank, 1999. "Voting on the Budget Deficit: Comment," American Economic Review, American Economic Association, American Economic Association, vol. 89(5), pages 1377-1381, December.
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Citations

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Cited by:
  1. Krogstrup, Signe & Wyplosz, Charles, 2006. "A Common Pool Theory of Deficit Bias Correction," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5866, C.E.P.R. Discussion Papers.
  2. Juergen von Hagen, 2010. "The Sustainability of Public Finanaces and Fiscal Policy Coordination in the EMU," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 412, CASE-Center for Social and Economic Research.
  3. Esposito, Piero & Paradiso, Antonio & Rao, B. Bhaskara, 2011. "The dynamics of Spanish public debt and sustainable paths for fiscal consolidation," MPRA Paper 32563, University Library of Munich, Germany.
  4. Paolo Biraschi, . "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers, Department of the Treasury, Ministry of the Economy and of Finance wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
  5. Krogstrup, Signe & Wyplosz, Charles, 2010. "A common pool theory of supranational deficit ceilings," European Economic Review, Elsevier, Elsevier, vol. 54(2), pages 269-278, February.
  6. Carlo Panico & Francesco Purificato, 2012. "The Role of Institutional and Political Factors in the European Debt Crisis," Working Papers, Political Economy Research Institute, University of Massachusetts at Amherst wp280, Political Economy Research Institute, University of Massachusetts at Amherst.
  7. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series, European Central Bank 0421, European Central Bank.
  8. James Hollyer, 2010. "Conditionality, compliance, and domestic interests: State capture and EU accession policy," The Review of International Organizations, Springer, Springer, vol. 5(4), pages 387-431, December.
  9. Andrés Leal Marcos & Julio López Laborda, 2009. "Efectos externos del endeudamiento sobre la calificación crediticia de las Comunidades Autónomas," Hacienda Pública Española, IEF, IEF, vol. 189(2), pages 81-106, June.

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