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101 proposals to reform the Stability and Growth Pact. Why so many? A survey

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  • Larch, Martin
  • Jonung, Lars
  • Fischer, Jonas

Abstract

The failure of key EU Member States to respect the provisions of the Stability and Growth Pact (SGP) a few years after its inception triggered a heated debate on how to reform the framework of fiscal policy coordination in the Economic and Monetary Union (EMU). This paper analyzes 101 reform proposals presented by professional academic and non-academic economists prior to March 2005, when the Council of the European Union adopted a revised version of the SGP. Roughly four different schools of thought concerning the reform of the SGP are identified. In line with the main findings of the political economy literature, all four schools of thought share the view that in the absence of specific rules fiscal policy would lead to excessive deficits and hence affect the conduct of the common monetary policy. However, beyond this common denominator, there is no consensus on how best to co-ordinate fiscal policy. We present several explanations for the multitude of proposals, the most important being the present lack of a consensus in the economics profession concerning the role of fiscal policy. Economists hold diverging views on the goals, instruments, efficiency and institutions for fiscal policy-making. This state of affairs is in sharp contrast to the case of monetary policy. Also, the euro area is the first case where monetary policy-making is centralized while fiscal policy-making is decentralized to national governments.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 20592.

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Date of creation: 2008
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Publication status: Published in Public Finance and Management 3.8(2008): pp. 502-560
Handle: RePEc:pra:mprapa:20592

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Keywords: Monetary union; euro; fiscal policy; Stability and Growth Pact; international policy coordination; EMU; European nion; Europe;

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  11. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Var är statsvetarna?
    by Martin Flodén in Ekonomistas on 2011-09-22 07:12:44
  2. ECB måste visa vägen ut!
    by Martin Flodén in Ekonomistas on 2011-09-09 04:00:45
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Cited by:
  1. Christian Fahrholz & Cezary Wojcik, 2010. "The Bail-Out! Positive political economics of Greek-type crises in the EMU," CASE Network Studies and Analyses, CASE-Center for Social and Economic Research 413, CASE-Center for Social and Economic Research.
  2. Paolo Biraschi, . "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
  3. Heikki Oksanen, 2009. "Setting targets for government budgets in the pursuit of intergenerational equity," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 358, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  4. Bodo Herzog, 2011. "EMU at Crossroads," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 12(4), pages 23-29, December.
  5. Wim Marneffe & Bas van Aarle & Wouter van der Wielen & Lode Vereeck, 2011. "The Impact of Fiscal Rules on Public Finances in the Euro Area," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 18-26, October.
  6. Larch, Martin & Van den Noord, Paul & Jonung, Lars, 2010. "The stability and growth pact: lessons from the great recession," MPRA Paper 27900, University Library of Munich, Germany.
  7. Michael D. Bordo & Agnieszka Markiewicz & Lars Jonung, 2011. "A Fiscal Union for the Euro: Some Lessons from History," NBER Working Papers 17380, National Bureau of Economic Research, Inc.
  8. Ali Bayar & Bram Smeets, 2009. "Government Deficits in the European Union: An Analysis of Entry and Exit Dynamics," CESifo Working Paper Series 2703, CESifo Group Munich.
  9. Barry Eichengreen, 2010. "The Breakup of the Euro Area," NBER Chapters, in: Europe and the Euro, pages 11-51 National Bureau of Economic Research, Inc.
  10. Ludger Schuknecht & Philippe Moutot & Philipp Rother & Jürgen Stark, 2011. "The Stability and Growth Pact: Crisis and Reform," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 10-18, October.
  11. Roel Beetsma & Heikki Oksanen, 2008. "Pensions under Ageing Populations and the EU Stability and Growth Pact ," CESifo Economic Studies, CESifo, CESifo, vol. 54(4), pages 563-592, December.
  12. Roel Beetsma & Heikki Oksanen, 2007. "Pension Systems, Ageing and the Stability and Growth Pact," CESifo Working Paper Series 2141, CESifo Group Munich.
  13. Karsten Staehr, 2008. "The Maastricht Inflation Criterion and the New EU Members from Central and Eastern Europe," Bank of Estonia Working Papers 2008-04, Bank of Estonia, revised 30 Oct 2008.
  14. Manfred Weber & Karl Knappe, 2007. "Fiscal policy in EMU after the reform of the european stability and growth pact," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 8(4), pages 45-51, 01.

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