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The Stability Pact – Rationales, Problems, Alternatives

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  • Assar Lindbeck
  • Dirk Niepelt

Abstract

We analyze economic rationales for, and possible alternatives to, the Stability and Growth Pact (SGP). We identify various cross‐country spillover effects and domestic policy failures as potential rationales. The two sets of problems suggest different corrective measures, and different measures than those applied in the context of the SGP. We contrast the ‘legalistic’ perspective adopted in the Pact with a more incentive‐based approach and discuss how the legalistic perspective gives rise to enforcement problems in connection with the implementation of the SGP's sanctions.

Suggested Citation

  • Assar Lindbeck & Dirk Niepelt, 2006. "The Stability Pact – Rationales, Problems, Alternatives," Kyklos, Wiley Blackwell, vol. 59(4), pages 579-600, November.
    • Handle: RePEc:bla:kyklos:v:59:y:2006:i:4:p:579-600
    DOI: 10.1111/j.1467-6435.2006.00350.x
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    1. Uhlig, H.F.H.V.S., 2002. "One Money, But Many Fiscal Policies in Europe : What are the Consequences?," Other publications TiSEM f2cdcc6c-329f-4ae6-915b-2, Tilburg University, School of Economics and Management.
    2. Lindbeck, Assar & Niepelt, Dirk, 2004. "Improving the SGP: Taxes and Delegation rather than Fines," Working Paper Series 633, Research Institute of Industrial Economics.
    3. V. V. Chari & Patrick J. Kehoe, 2003. "On the desirability of fiscal constraints in a monetary union," Staff Report 330, Federal Reserve Bank of Minneapolis.
    4. Marco Bassetto, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(4), pages 1167-1210.
    5. Uhlig, H.F.H.V.S., 2002. "One Money, But Many Fiscal Policies in Europe : What are the Consequences?," Discussion Paper 2002-32, Tilburg University, Center for Economic Research.
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    Cited by:

    1. Vyprachticka, Terezie, 2011. "Could the Stability and Growth Pact be Substituted by the Financial Markets?," European Integration online Papers (EIoP), European Community Studies Association Austria (ECSA-A), vol. 15, September.
    2. Ngai, Victor, 2012. "Stability and Growth Pact and Fiscal Discipline in the Eurozone," Working Papers 12-10, University of Pennsylvania, Wharton School, Weiss Center.
    3. Niclas Berggren, 2012. "The Calculus of Consent: some Swedish connections," Public Choice, Springer, vol. 152(3), pages 313-321, September.

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