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Making The Stability Pact More Flexible: Does It Lead to Procyclical Fiscal Policies?

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  • Michal Mackiewicz

    ()
    (Institute of Economics, University of Lodz)

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    Abstract

    One of the often discussed negative aspects of the Stability and Growth Pact is the rigidity of its deficit rule. Several reform proposals aim currently at alleviating the rule in order to allow the automatic stabilizers to operate freely. However, such a reform is likely to cause even further deterioration of fiscal balances in the member countries. The empirical evidence presented in this paper shows that, in the past, increasing the structural deficit had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This suggests that the reform of the Pact, through higher structural deficits, can decrease rather then increase the scope of anti-cyclical fiscal actions in the EMU member countries.

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    Bibliographic Info

    Paper provided by Institute of Economics, University of Lodz in its series Working Papers with number 0099.

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    Length: 21 pages
    Date of creation: Mar 2005
    Date of revision: May 2006
    Handle: RePEc:ldz:wpaper:0099

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    Postal: ul. Polskiej Organizacji Wojskowej 3/5, 90-255 Lodz
    Web page: http://www.ke.uni.lodz.pl
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    Keywords: fiscal policy; stabilization policy; fiscal rules;

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