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The Myth (or Folly) of the 3 Percent Deficit/GDP Maastricht 'Parameter.'

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  • Pasinetti, Luigi L

Abstract

A relation is presented defining the boundary, algebraically and geometrically, to the sustainability area of public finance. The relation (and area) involve three magnitudes: deficit/GDP, debt/GDP, and rate of growth. It is shown that the parameters stated in the famous Annex to the Maastricht Treaty (60 percent for the debt/GDP ratio and 3 percent for the deficit/GDP ratio) represent only one particular point on the above mentioned boundary relation to the sustainability area. There exists an infinite number of other points sharing the same characteristics. On the basis of the OECD data referring to the end of 1996, it is shown that all major European countries find themselves outside the sustainability area, except Belgium and Italy, i.e., exactly the opposite of what is widely believed to be the case in current discussions. Copyright 1998 by Oxford University Press.

Suggested Citation

  • Pasinetti, Luigi L, 1998. "The Myth (or Folly) of the 3 Percent Deficit/GDP Maastricht 'Parameter.'," Cambridge Journal of Economics, Oxford University Press, vol. 22(1), pages 103-116, January.
  • Handle: RePEc:oup:cambje:v:22:y:1998:i:1:p:103-16
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Debts and deficits: why a string of deficits does not necessarily spell the end of the world
      by Graham White, Associate Professor, School of Economics at University of Sydney in The Conversation on 2013-05-09 07:35:25

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    1. -, 2000. "The fiscal impact of trade liberalization and commodity price fluctuation: the case of Dominican Republic, 1980-1998," Sede Subregional de la CEPAL en México (Estudios e Investigaciones) 25434, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Giovanna Vertova, 2014. "What’s gender got to do with the Great Recession? The Italian case," Chapters,in: The Great Recession and the Contradictions of Contemporary Capitalism, chapter 11, pages 189-207 Edward Elgar Publishing.
    3. Kurt W. Rothschild, 2001. "Ach Europa: Einige kritische polit-ökonomische Notizen zum Thema "Europa"," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 2(1), pages 1-14, February.
    4. Stefano Lucarelli & Roberto Romano, 2016. "The Italian Crisis within the European Crisis. The Relevance of the Technological Foreign Constraint," World Economic Review, World Economics Association, vol. 2016(6), pages 1-12, February.
    5. Roberto Martino & Phu Nguyen-Van, 2014. "Labour market regulation and fiscal parameters: A structural model for European regions," Working Papers of BETA 2014-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    6. Charles, Sebastien & Dallery, Thomas, 2013. "L’expiation par l’austérité ou la stratégie de l’échec : une interprétation post-keynésienne de la crise des pays périphériques en zone euro
      [Expiation through austerity or the strategy of failure:
      ," MPRA Paper 65735, University Library of Munich, Germany.
    7. Mauro VISAGGIO, "undated". "Does the Growth and Stability Pact Provide an Adequate and Consistent Fiscal Rule?," EcoMod2004 330600154, EcoMod.
    8. Orsola Costantini, 2015. "The Cyclically Adjusted Budget: History and Exegesis of a Fateful Estimate," Working Papers Series 24, Institute for New Economic Thinking.
    9. J.W. Mason & Arjun Jayadev, 2015. "Lost in Fiscal Space: Some Simple Analytics of Macroeconomic Policy in the Spirit of Tinbergen, Wicksell and Lerner," Working Papers 2015_05, University of Massachusetts Boston, Economics Department.
    10. Garbellini, Nadia, 2014. "Small fiscal multipliers do not justify austerity: a macroeconomic accounting analysis of public debt-to-gdp dynamics," MPRA Paper 62231, University Library of Munich, Germany.
    11. Giuseppe Mastromatteo & Lorenzo Esposito, 2015. "The Two Approaches to Money: Debt, Central Banks, and Functional Finance," Economics Working Paper Archive wp_855, Levy Economics Institute.
    12. Pica, Federico & Villani, Salvatore, 2012. "Debito, Mezzogiorno e sviluppo. A trivial exercise
      [Sovereign Debt Sustainability, Mezzogiorno and Economic Growth. A Trivial Exercise]
      ," MPRA Paper 43199, University Library of Munich, Germany, revised 28 Nov 2012.
    13. Romero, Hector & Fajardo, Eddy Johanna, 2013. "Notas sobre la sostenibilidad de la deuda pública en Venezuela
      [Some considerations on debt sustainability in Venezuela]
      ," MPRA Paper 69671, University Library of Munich, Germany, revised 2013.
    14. Enrico Gabriele, 2017. "Re-Evaluating The Keynesian Multiplier: Critiques And Evidence From Europe," CERBE Working Papers wpC21, CERBE Center for Relationship Banking and Economics.
    15. Kowalski, Tadeusz, 2012. "The economic and monetary union countries vs. the global crisis," MPRA Paper 37942, University Library of Munich, Germany.
    16. Stoian, Andreea & Alves, Rui Henrique, 2014. "High public debt in the euro area: still a fact," MPRA Paper 63679, University Library of Munich, Germany.

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