Fiscal Policy and Fiscal Rules in the European Union
AbstractThis paper discusses the theory and practice of counter-cyclical fiscal policy to draw conclusions relevant for the fiscal architecture of the European Union. It starts by reviewing major lines of criticism on counter-cyclical fiscal policy, such as the existence of various lags, versions of Ricardian equivalence, non-Keynesian effects of fiscal policies and public choice considerations leading to asymmetry in the use of fiscal instruments. The paper then focuses on factors hampering implementation of a counter-cyclical fiscal policy. First, estimates of counterfactual variables – current and future – that are needed for running the policy are subject to significant margins of uncertainty. Second, relationships between national income on the one side and public revenues and spending on the other side tend to be unstable. Third, precise and timely measures of fiscal positions are largely non-existent. Finally, political requirements for an effective counter-cyclical policy are not met. The pre-Maastricht experience of EU countries, with a massive buildup of public debt despite fiscal-friendly environment, suggests a need for fiscal rules to avoid Argentina-like debt crises. Diverging initial positions of countries call for flexible approach as to the time needed to conform but not for relaxation of the rules, as it recently happened to the Stability and Growth Pact.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by CASE-Center for Social and Economic Research in its series CASE Network Studies and Analyses with number 0301.
Length: 15 Pages
Date of creation: 2005
Date of revision:
fiscal rules; counter-cyclical policy; Stability and Growth Pact;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Giavazzi, Francesco & Pagano, Marco, 1995.
"Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience,"
CEPR Discussion Papers
1284, C.E.P.R. Discussion Papers.
- Francesco Giavazzi & Marco Pagano, 1996. "Non-Keynesian Effects of Fiscal Policy Changes: International Evidence and the Swedish Experience," NBER Working Papers 5332, National Bureau of Economic Research, Inc.
- Schuknecht, Ludger & Tanzi, Vito, 2005. "Reforming public expenditure in industrialised countries: are there trade-offs?," Working Paper Series 0435, European Central Bank.
- Barro, Robert J., 1974.
"Are Government Bonds Net Wealth?,"
3451399, Harvard University Department of Economics.
- Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004.
"When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies,"
NBER Working Papers
10780, National Bureau of Economic Research, Inc.
- Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters, in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
- Reinhart, Carmen & Kaminsky, Graciela & Vegh, Carlos, 2004. "When it rains, it pours: Procyclical capital flows and macroeconomic policies," MPRA Paper 13883, University Library of Munich, Germany.
- Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
- Vito Tanzi, 2004. "The Stability and Growth Pact: Its Role and Future," Cato Journal, Cato Journal, Cato Institute, vol. 24(1-2), pages 57-69, Spring/Su.
- repec:cto:journl:v:24:y:2004:i:1-2:p:57-69 is not listed on IDEAS
- Malley, Jim & Philippopoulos, Apostolis & Woitek, Ulrich, 2009. "To react or not? Technology shocks, fiscal policy and welfare in the EU-3," European Economic Review, Elsevier, vol. 53(6), pages 689-714, August.
- Marek Dabrowski & Artur Radziwill, 2007.
"Regional vs. Global Public Goods: The Case of Post-Communist Transition,"
CASE Network Studies and Analyses
0336, CASE-Center for Social and Economic Research.
- Dabrowski, Marek & Radziwill, Artur, 2007. "Regional vs. Global Public Goods: The Case of Post-Communist Transition," MPRA Paper 11967, University Library of Munich, Germany.
- Vito Tanzi, 2006. "Fiscal Policy: When Theory Collides with Reality," IDB Publications 9110, Inter-American Development Bank.
- Kocenda, Evzen & Kutan, Ali M. & Yigit, Taner M., 2008. "Fiscal convergence in the European Union," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 319-330, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Katarzyna SidÅ‚o).
If references are entirely missing, you can add them using this form.