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Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance

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  • Francesco Saraceno

    (OFCE)

  • Paola Veroni

    (OFCE)

Abstract

This paper aims at providing a quantitative assessment of different proposals for reforming the Stability and Growth Pact by extending a counterfactual experiment performed in Eichengreen and Wyplosz (1998). Using estimated coefficients from a reduced form model, we simulate the path of the output gap for the largest Euro zone countries (France, Germany, Italy) after imposing limits to structural deficit according to different fiscal rules (structural deficit rules, golden rules and rules that incorporate the stock of debt). For each of these countries we can rank the different reform proposals in terms of output loss over the period considered. Our analysis has the merit of using a uniform method and hence allow a comparison across countries and across rules. The main results of the experiment, which emerge robustly, are (a), that the golden rule would be the most beneficial both using individual country's criteria and global criteria; and (b) that the status quo, the Maastricht rule, is less restrictive than many currently debated alternatives.

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Paper provided by Sciences Po in its series Sciences Po publications with number 2005-1.

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Date of creation: Jan 2005
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Handle: RePEc:spo:wpmain:info:hdl:2441/2842

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  1. André Sapir & Marco Buti, 2002. "EMU and economic policy in Europe: the challenge of the early years," ULB Institutional Repository 2013/8072, ULB -- Universite Libre de Bruxelles.
  2. Lars Calmfors & Giancarlo Corsetti, 2003. "How to Reform Europe’s Fiscal Policy Framework," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 4(1), pages 109-116, January.
  3. Jérôme Creel, 2003. "Ranking Fiscal Policy Rules: the Golden Rule of Public Finance vs. the Stability and Growth Pact," Sciences Po publications 2003-04, Sciences Po.
  4. André Sapir, 2002. "EMU in the early years: differences and credibility," ULB Institutional Repository 2013/8134, ULB -- Universite Libre de Bruxelles.
  5. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2003. "Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-176184, Tilburg University.
  6. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
  7. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4220, C.E.P.R. Discussion Papers.
  8. Corsetti, Giancarlo & Devereux, Michael P. & Guiso, Luigi & Hassler, John & Saint-Paul, Gilles & Sinn, Hans-Werner & Sturm, Jan-Egbert & Vives, Xavier, 2010. "The European economy," Munich Reprints in Economics, University of Munich, Department of Economics 20104, University of Munich, Department of Economics.
  9. 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.
  10. Francesco Saraceno & Paola Monperrus-Veroni, 2004. "A Simple Proposal for a "Debt-Sensitive Stability Pact"," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 73(3), pages 471-480.
  11. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
  12. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, Wiley Blackwell, vol. 40(5), pages 823-848, December.
  13. 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.
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Cited by:
  1. Jérôme Creel & Francesco Saraceno, 2008. "Automatic Stabilisation, Discretionary Policy and the Stability Pact," Sciences Po publications 2008-15, Sciences Po.
  2. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2013. "An assessment of the Stability and Growth Pact reform in a small-scale macro-framework," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(8), pages 1567-1580.
  3. 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).
  4. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2012. "The European Fiscal Compact: A Counterfactual Assessment," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 27, pages 537-563.
  5. Paul Hubert & Jérôme Creel & Francesco Saraceno, 2012. "An assessment of stability and growth pact reform proposals in a small-scale macro framework," Sciences Po publications 2012-04, Sciences Po.

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