Advanced Search
MyIDEAS: Login to save this paper or follow this series

Fiscal discipline as a social norm : the European Stability Pact

Contents:

Author Info

  • Jean-Paul Fitoussi

    (OFCE)

  • Francesco Saraceno

    (OFCE)

Abstract

This paper reviews the arguments for and against the ‘Stability and Growth Pact’ signed by the countries of the Euro area. We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite, and equally plausible conclusions. We also argue that evidence in favour of a Pact-like rule is scant. We therefore suggest the view that the Stability Pact is a public social norm, and that a country’s adherence to that norm is in fact a response to the need to preserve reputation among the other members of the European Union. Using this extreme but not implausible hypothesis, we build a simple model similar in spirit to Akerlof’s (1980) seminal paper on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. We further show that after the enlargement, with a number of countries anxious to prove their ‘soundness’ joining the club, the problems posed by the pact/social norm are likely to increase.

Download Info

If 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.
File URL: http://spire.sciencespo.fr/hdl:/2441/1482/resources/wp2007-22-fitou-saraceno.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Sciences Po in its series Sciences Po publications with number n°2007-22.

as in new window
Length:
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:spo:wpmain:info:hdl:2441/1482

Contact details of provider:
Web page: http://www.sciencespo.fr/
More information through EDIRC

Related research

Keywords: Stability Pact; Fiscal Rules; Social Norms; Fiscal Policy; Pacte de stabilité; politique fiscale; normes sociales; normes fiscales;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Ludger Schuknecht, 2005. "Stability and Growth Pact: issues and lessons from political economy," International Economics and Economic Policy, Springer, Springer, vol. 2(1), pages 65-89, 06.
  2. Beetsma, Roel & Debrun, Xavier & Klaassen, Franc, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3035, C.E.P.R. Discussion Papers.
  3. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "Fiscal Discipline as a Social Norm: The European Stability Pact," Sciences Po publications info:hdl:2441/9909, Sciences Po.
  4. Jérôme Creel & Francesco Saraceno & Paola Veroni, 2007. "Has the Golden Rule of Public Finance Made a difference in the UK," Sciences Po publications 2007-13, Sciences Po.
  5. Francesco Giavazzi & Marco Pagano, 1990. "Can Severe Fiscal Contractions Be Expansionary? Tales of two Small Euopean Countries," Working Papers 89, Dipartimento Scienze Economiche, Universita' di Bologna.
  6. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4661, C.E.P.R. Discussion Papers.
  7. Steven R. Cunningham & Jon Vilasuso, 1995. "Is Keynesian Demand Management Policy Still Viable?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 17(2), pages 187-210, January.
  8. Schiantarelli, Fabio & Perotti, Roberto & Ardagna, Silvia & Alesina, Alberto, 2002. "Fiscal Policy, Profits, and Investment," Scholarly Articles 4685103, Harvard University Department of Economics.
  9. Stuart Landon & Constance E. Smith, 2000. "Government debt spillovers and creditworthiness in a federation," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(3), pages 634-661, August.
  10. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "Fiscal Discipline as a Social Norm: The European Stability Pact," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1143-1168, December.
  11. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, 03.
  12. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
  13. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 94(4), pages 749-75, June.
  14. Levine, Paul & Brociner, Andrew, 1994. "Fiscal policy coordination and EMU : A dynamic game approach," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(3-4), pages 699-729.
  15. Dixon, Huw David & Santoni, Michele, 1997. "Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 107(441), pages 403-17, March.
  16. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 114(4), pages 1399-1436, November.
  17. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, Federal Reserve Bank of Kansas City, pages 333-389.
  18. Antonio Fatás & Ilian Mihov, 2003. "The Case For Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(4), pages 1419-1447, November.
  19. repec:hrv:faseco:3353756 is not listed on IDEAS
  20. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2005. "The Stability pact Pains: A Forward-Looking Assessment of the Reform Debate," Discussion Paper, Tilburg University, Center for Economic Research 2005-101, Tilburg University, Center for Economic Research.
  21. Marco Catenaro & Patrizio Tirelli, 2000. "Reconsidering The Pros and Cons of Fiscal Policy Co-ordination in a Monetary Union: Should We Set Public Expenditure Targets ?," School of Economics Discussion Papers, School of Economics, University of Surrey 0002, School of Economics, University of Surrey.
  22. Allsopp, Christopher & Davies, Gareth & Vines, David, 1995. "Regional Macroeconomic Policy, Fiscal Federalism, and European Integration," Oxford Review of Economic Policy, Oxford University Press, Oxford University Press, vol. 11(2), pages 126-44, Summer.
  23. Detken, Carsten & Gaspar, Vítor & Winkler, Bernhard, 2004. "On prosperity and posterity: the need for fiscal discipline in a monetary union," Working Paper Series, European Central Bank 0420, European Central Bank.
  24. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(4), pages 99-117, Fall.
  25. Andersen, Torben M. & Sorensen, Jan Rose, 1995. "Unemployment and fiscal policy in an economic and monetary union," European Journal of Political Economy, Elsevier, Elsevier, vol. 11(1), pages 27-43, March.
  26. Jensen, Henrik, 1996. "The advantage of international fiscal cooperation under alternative monetary regimes," European Journal of Political Economy, Elsevier, Elsevier, vol. 12(3), pages 485-504, November.
  27. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(4), pages 858-885, 06.
  28. Yash P. Mehra, 1992. "Deficits and long-term interest rates: an empirical note," Working Paper, Federal Reserve Bank of Richmond 92-02, Federal Reserve Bank of Richmond.
  29. Bernoth, Kerstin & Schuknecht, Ludger & von Hagen, Jürgen, 2004. "Sovereign Risk Premia in the European Bond Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4465, C.E.P.R. Discussion Papers.
  30. Alberto Alesina & Roberto Perotti, 1997. "Fiscal Adjustments in OECD Countries: Composition and Macroeconomic Effects," IMF Staff Papers, Palgrave Macmillan, vol. 44(2), pages 210-248, June.
  31. Caporale, Guglielmo Maria & Williams, Geoffrey, 2002. "Long-term nominal interest rates and domestic fundamentals," Review of Financial Economics, Elsevier, Elsevier, vol. 11(2), pages 119-130.
  32. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal discipline and the cost of public dept service: some estiames for OECD countries," Working Paper Series, European Central Bank 0411, European Central Bank.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Jean-Paul Fitoussi & Francesco Saraceno, 2008. "Fiscal Discipline as a Social Norm: The European Stability Pact," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 10(6), pages 1143-1168, December.
  2. Frédéric Marty, 2007. "Partenariats public-privé, règles de discipline budgétaire, comptabilité patrimoniale et stratégies de hors bilan," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2007-29, Observatoire Francais des Conjonctures Economiques (OFCE).
  3. Jérôme Creel & Paul Hubert & Francesco Saraceno, 2014. "French Public Finances at Risk?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 61(1), pages 1-19, Februar.
  4. Jérôme Creel & Paul Hubert & Francesco Saraceno,, 2013. "Assessing future sustainability of french public finances," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2013-11, Observatoire Francais des Conjonctures Economiques (OFCE).
  5. Shirai, Sayuri, 2009. "Euの通貨統合と金融・財政政策の規律
    [EU Currency Union and Disciplines for Financial・Moneatry Policies]
    ," MPRA Paper 15713, University Library of Munich, Germany.
  6. Baldi, Guido, 2013. "Fiscal Policy Institutions and Economic Transition in North Africa," MPRA Paper 48677, University Library of Munich, Germany.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:spo:wpmain:info:hdl:2441/1482. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Spire @ Sciences Po Library).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.