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Stability and Growth Pact: An Index to Trigger an Early Warning Earlier?

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Author Info
Thierry Warin ()

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Abstract

This paper addresses the question of a technical change in one the components of the Stability and Grown Pact (SGP). Indeed, the SGP is composed of (1) a political commitment, (2) a preventive element, and (3) a dissuasive element, and an improvement of the SGP efficacy can come from any of these three components. In this paper the author proposes a new early warning procedure, part of the preventive element. The ideal situation would be for the European Commission to be able to identify countries at risk as soon as they vote their national budgets. Although this is not possible, as the measures of the deficit are based on GDP forecasts, the conclusion this paper makes is that the EC should avoid relying on GDP forecasts by calculating a reference index.

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Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0502.

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Length: 14 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:mdl:mdlpap:0502

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Related research
Keywords: europe; fiscal rule; stability and growth pact; political economics;

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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
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization
F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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  1. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May. [Downloadable!] (restricted)
  2. Thierry Warin, 2004. "Should Europe Get Rid of the Stability and Growth Pact?," Middlebury College Working Paper Series 0415, Middlebury College, Department of Economics. [Downloadable!]
  3. Vranceanu, Radu & Warin, Thierry, 2001. "EMU: Optimal Fiscal Strategy and the Punishment Effectiveness," Review of International Economics, Blackwell Publishing, vol. 9(3), pages 494-504, August. [Downloadable!] (restricted)
  4. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR, CES, MSH, vol. 21(47), pages 491-534, 07. [Downloadable!] (restricted)
  5. Perotti, Roberto & Strauch, Rolf & von Hagen, Jürgen, 1997. "Sustainability of Public Finances," CEPR Discussion Papers 1781, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Dixit, Avinash, 2001. "Games of monetary and fiscal interactions in the EMU," European Economic Review, Elsevier, vol. 45(4-6), pages 589-613, May. [Downloadable!] (restricted)
  7. Beetsma, R. & Bovenberg, L., 1995. "The interaction of fiscal and monetary policy in a monetary union : balancing credibility and flexibility," Discussion Paper 101, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  8. Uhlig, Harald, 2002. "One Money, but Many Fiscal Policies in Europe: What Are the Consequences?," CEPR Discussion Papers 3296, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  9. Thierry Warin & Lindsay Wolff, 2005. "EuropeÕs Deficit Free Riders: A Panel Data Analysis," European Political Economy Review, European Political Economy Infrastructure Consortium, vol. 3(Spring), pages 5-17. [Downloadable!]
  10. Nielsen, Soren Bo, 1992. "A note on the sustainability of primary budget deficits," Journal of Macroeconomics, Elsevier, vol. 14(4), pages 745-754. [Downloadable!] (restricted)
  11. 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)
  12. W. Bolt, 1999. "Fiscal Restraints, ECB Credibility and the Stability Pact:A Game-Theoretic Perspective," DNB Staff Reports (discontinued) 38, Netherlands Central Bank. [Downloadable!]
  13. Francesco P. Mongelli, 1996. "The Effects of the European Economic and Monetary Union (EMU) on National Fiscal Sustainability," IMF Working Papers 96/72, International Monetary Fund.
  14. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-71, February. [Downloadable!] (restricted)
    Other versions:
  15. Otmar Issing, 2002. "On Macroeconomic Policy Co-ordination in EMU," Journal of Common Market Studies, Blackwell Publishing, vol. 40(2), pages 345-358, 06. [Downloadable!] (restricted)
  16. Leith, Campbell & Simon Wren-Lewis, 2002. "Compatibility Between Monetary and Fiscal Policy Under EMU," Royal Economic Society Annual Conference 2002 124, Royal Economic Society. [Downloadable!]
    Other versions:
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