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Making The Pact More Flexible: Can It Lead to Less Flexible Fiscal Policies?


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  • Michal Mackiewicz


One of the most often discussed features of the Stability and Growth Pact is the rigidity of its 3% deficit rule. In the recent time several reform proposals aim at alleviating the rule in order to allow more room for the automatic stabilizers to operate. As the 3% limit became in the recent years the only binding (at least partially) rule of the Pact’s framework, such a reform is likely to cause even further deterioration of the member countries’ fiscal balances. The empirical evidence presented in the paper shows that in the past lowering the structural budget surplus had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This, in turn, suggests that the Pact’s reform, through higher structural deficits, is likely to decrease, rather then increase, the scope of anti-cyclical fiscal actions undertaken by the EMU member countries.

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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0505023.

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Length: 12 pages
Date of creation: 25 May 2005
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Handle: RePEc:wpa:wuwpma:0505023

Note: Type of Document - pdf; pages: 12
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Keywords: fiscal policy; stabilization policy; fiscal rules; Stability and Growth Pact;

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