The Impact of the Stability and Growth Pact on Real Economic
AbstractThe recession under way in the European Union and the threat of deflation have spawned increasing frequent calls for modification of the Stability and Growth Pact. The present article confirms the negative correlation of the rate of real output growth with that of increase in current public expenditure, but finds a positive correlation of growth with the rate of increase in public capital spending, private investment, tax to GDP ratio, and an indicator of the net profit rate. The policy prescription is for the urgent modification of the rules of the Pact, exempting public investment from its constraints subject to the assessment of the Ecofin Council. The markets would be receptive to such a change if the EU instituted clear new rules, not just reinterpreting those now in being under the pressure of contingent factors. On this basis, we find that Italy's economic crisis is due in part to the misconceived fiscal and monetary policy rules of the European Union.
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Bibliographic InfoPaper provided by EconWPA in its series Public Economics with number 0403003.
Length: 19 pages
Date of creation: 18 Mar 2004
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Note: Type of Document - pdf; pages: 19
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Stability Pact; Fiscal Rules; European Union; Ricardian Equivalence;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H6 - Public Economics - - National Budget, Deficit, and Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-03-22 (All new papers)
- NEP-DEV-2004-03-22 (Development)
- NEP-MAC-2004-03-22 (Macroeconomics)
- NEP-PBE-2004-03-22 (Public Economics)
- NEP-PKE-2004-03-22 (Post Keynesian Economics)
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- Oldani, Chiara & Savona, Paolo, 2005. "Derivatives, Fiscal Policy and Financial Stability," MPRA Paper 36199, University Library of Munich, Germany.
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