This paper examines the adequacy and the consistency of the fiscal rule set by the Treaty of Maastricht and the Stability and Growth Pact. First, it shows that the functional fiscal rule is adequate in ensuring the final goal of public debt sustainability. Second, it points out that the draw of an arbitrary numerical value is indifferent to reach the final goal even if produces different intergenerational distribution of public debt burden. Finally, it shows that the updated numerical fiscal rule of Stability and Growth Pact removes the inconsistency of the previous numerical fiscal rule – arising for a given set of value of GDP – embodied in the Treaty of Maastricht but at the same time it implies that in the long period public debt has to be retired entirely and consequently imposes a heavy burden on generations living at the time of fiscal adjustment.
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Paper provided by EconWPA in its series Macroeconomics with number
0407008.
Length: 32 pages Date of creation: 06 Jul 2004 Date of revision: Handle: RePEc:wpa:wuwpma:0407008
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Find related papers by JEL classification: E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies 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 F02 - International Economics - - General - - - International Economic Order; Noneconomic International Organizations;; Economic Integration and Globalization: General
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