IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Fiscal Discipline as a Social Norm: The European Stability Pact

  • JEAN-PAUL FITOUSSI
  • FRANCESCO SARACENO

This paper reviews the arguments for and against the "Stability and Growth Pact." We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite and plausible conclusions. Empirical evidence in favor of a Pact-like rule is also scant. We therefore suggest the view that the Stability Pact is a public social norm, that countries obey in order 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 work on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. Increased heterogenity generally has the effect of further reducing aggregate welfare; we conclude that the problems posed by the Pact/social norm are likely to increase following the enlargement, when a number of countries anxious to prove their "soundness" joined the club. Copyright � 2008 Wiley Periodicals, Inc..

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://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9779.2008.00400.x
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 10 (2008)
Issue (Month): 6 (December)
Pages: 1143-1168

as
in new window

Handle: RePEc:bla:jpbect:v:10:y:2008:i:6:p:1143-1168
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=1097-3923

More information through EDIRC

Order Information: Web: http://www.blackwellpublishing.com/subs.asp?ref=1097-3923

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. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2005. "The Stability pact Pains : A Forward-Looking Assessment of the Reform Debate," Discussion Paper 2005-101, Tilburg University, Center for Economic Research.
  2. Silvia Ardagna & Francesco Caselli & Timothy Lane, 2005. "Fiscal Discipline and the Cost of Public Debt Service: Some Estimates for OECD Countries," CEP Discussion Papers dp0670, Centre for Economic Performance, LSE.
  3. Levine, Paul & Brociner, Andrew, 1994. "Fiscal policy coordination and EMU : A dynamic game approach," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 699-729.
  4. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, vol. 7(4), pages 858-885, 06.
  5. 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.
  6. Andersen, Torben M. & Sorensen, Jan Rose, 1995. "Unemployment and fiscal policy in an economic and monetary union," European Journal of Political Economy, Elsevier, vol. 11(1), pages 27-43, March.
  7. Alberto Alesina & Silvia Ardagna & Roberto Perotti & Fabio Schiantarelli, 2000. "Fiscal Policy, Profits, and Investment," Boston College Working Papers in Economics 504, Boston College Department of Economics.
  8. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
  9. Dixon, Huw David & Santoni, Michele, 1997. "Fiscal Policy Coordination with Demand Spillovers and Unionised Labour Markets," Economic Journal, Royal Economic Society, vol. 107(441), pages 403-17, March.
  10. Stuart Landon & Constance E. Smith, 2000. "Government debt spillovers and creditworthiness in a federation," Canadian Journal of Economics, Canadian Economics Association, vol. 33(3), pages 634-661, August.
  11. Roel Beetsma & Xavier Debrun & Frank Klaassen, 2001. "Is Fiscal Policy Coordination in EMU Desirable?," CESifo Working Paper Series 599, CESifo Group Munich.
  12. Jean-Paul Fitoussi & Francesco Saraceno, 2007. "Fiscal Discipline as a Social Norm: The European Stability Pact," Documents de Travail de l'OFCE 2007-22, Observatoire Francais des Conjonctures Economiques (OFCE).
  13. Bernoth, Kerstin & Schuknecht, Ludger & von Hagen, Jürgen, 2004. "Sovereign Risk Premia in the European Bond Market," CEPR Discussion Papers 4465, C.E.P.R. Discussion Papers.
  14. Fatás, Antonio & Mihov, Ilian, 2002. "The Case for Restricting Fiscal Policy Discretion," CEPR Discussion Papers 3277, C.E.P.R. Discussion Papers.
  15. Steven R. Cunningham & Jon Vilasuso, 1995. "Is Keynesian Demand Management Policy Still Viable?," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 17(2), pages 187-210, January.
  16. Marco Catenaro & Patrizio Tirelli, 1999. "Reconsidering The Pros and Cons of Fiscal Policy Coordination in a Monetary Union: Should We Set Public Expenditure Targets?," Working Papers 30, University of Milano-Bicocca, Department of Economics, revised Sep 2000.
  17. Detken, Carsten & Gaspar, Vítor & Winkler, Bernhard, 2004. "On prosperity and posterity: the need for fiscal discipline in a monetary union," Working Paper Series 0420, European Central Bank.
  18. 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.
  19. 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, pages 333-389.
  20. Ardagna, Silvia & Caselli, Francesco & Lane, Timothy, 2004. "Fiscal discipline and the cost of public dept service: some estiames for OECD countries," Working Paper Series 0411, European Central Bank.
  21. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
  22. 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.
  23. repec:hrv:faseco:3353756 is not listed on IDEAS
  24. repec:dgr:kubcen:2005101 is not listed on IDEAS
  25. Yash P. Mehra, 1992. "Deficits and long-term interest rates: an empirical note," Working Paper 92-02, Federal Reserve Bank of Richmond.
  26. Allsopp, Christopher & Davies, Gareth & Vines, David, 1995. "Regional Macroeconomic Policy, Fiscal Federalism, and European Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 11(2), pages 126-44, Summer.
  27. Ludger Schuknecht, 2005. "Stability and Growth Pact: issues and lessons from political economy," International Economics and Economic Policy, Springer, vol. 2(1), pages 65-89, 06.
  28. Jensen, Henrik, 1996. "The advantage of international fiscal cooperation under alternative monetary regimes," European Journal of Political Economy, Elsevier, vol. 12(3), pages 485-504, November.
  29. 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.
  30. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 99-117, Fall.
  31. Caporale, Guglielmo Maria & Williams, Geoffrey, 2002. "Long-term nominal interest rates and domestic fundamentals," Review of Financial Economics, Elsevier, vol. 11(2), pages 119-130.
  32. Barry Eichengreen & Charles Wyplosz, 1998. "The Stability Pact: more than a minor nuisance?," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 65-113, 04.
  33. Willem H. Buiter & Clemens Grafe, 2004. "Patching up the Pact," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(1), pages 67-102, 03.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:bla:jpbect:v:10:y:2008:i:6:p:1143-1168. 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: (Wiley-Blackwell Digital Licensing)

or (Christopher F. Baum)

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.