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Has the Stability and Growth Pact Changed the Likelihood of Excessive Deficits in the European Union?

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  • S. Tolga Tiryaki

Abstract

This paper presents an empirical analysis of excessive deficit spells in the European Union using transition data methods. Probabilities of transition between excessive and nonexcessive deficit states are estimated with time-varying macroeconomic covariates as explanatory variables. The quantitative effects of discretionary fiscal and monetary policies and cyclical factors on transition probabilities are disentangled so that we can account for what factors and by how much they contributed to certain member countries' breaching of the Pact. Another finding is that the Stability and Growth Pact seems to have reinforced fiscal discipline in most of the member countries.

Suggested Citation

  • S. Tolga Tiryaki, 2008. "Has the Stability and Growth Pact Changed the Likelihood of Excessive Deficits in the European Union?," Central Bank Review, Research and Monetary Policy Department, Central Bank of the Republic of Turkey, vol. 8(1), pages 65-83.
  • Handle: RePEc:tcb:cebare:v:8:y:2008:i:1:p:65-83
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    File URL: http://www.tcmb.gov.tr/wps/wcm/connect/EN/TCMB+EN/Main+Menu/Publications/Central+Bank+Review/2008/Volume+8-1/
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    References listed on IDEAS

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    1. Jordi Galí & Roberto Perotti, 2003. "Fiscal policy and monetary integration in Europe," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 533-572, October.
    2. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
    3. Mark Mink & Jakob de Haan, 2005. "Has the Stability and Growth Pact Impeded Political Budget Cycles in the European Union?," CESifo Working Paper Series 1532, CESifo Group Munich.
    4. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-679, June.
    5. Jenkins, Stephen P, 1995. "Easy Estimation Methods for Discrete-Time Duration Models," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 57(1), pages 129-138, February.
    6. 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.
    7. Dornbusch, Rudi, 1997. "Fiscal Aspects of Monetary Integration," American Economic Review, American Economic Association, vol. 87(2), pages 221-223, May.
    8. Jordi Gali & Roberto Perotti, 2003. "Fiscal Policy and Monetary Integration in Europe," NBER Working Papers 9773, National Bureau of Economic Research, Inc.
    9. Hallerberg, Mark & Strauch, Rolf & von Hagen, Jurgen, 2007. "The design of fiscal rules and forms of governance in European Union countries," European Journal of Political Economy, Elsevier, vol. 23(2), pages 338-359, June.
    10. A.J. Hughes Hallett & Peter McAdam, 2003. "Deficit Targeting Strategies: Fiscal Consolidation and the Probability Distribution of Deficits under the Stability Pact," Journal of Common Market Studies, Wiley Blackwell, vol. 41(3), pages 421-444, June.
    11. Masson, Paul R, 1996. "Fiscal Dimensions of EMU," Economic Journal, Royal Economic Society, vol. 106(437), pages 996-1004, July.
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    Citations

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    Cited by:

    1. Sèna Kimm Gnangnon, 2012. "Structural Vulnerability and Excessive Public Indebtedness in CFA Franc Zone Countries," Working Papers halshs-00749470, HAL.
    2. Sena Kimm GNANGNON, 2012. "Structural Vulnerability and Excessive Public Indebtedness in CFA Franc Zone Countries," Working Papers 201237, CERDI.
    3. Gnangnon, Sèna Kimm, 2013. "Structural vulnerability and excessive public indebtedness in CFA Franc Zone countries," Economic Modelling, Elsevier, vol. 35(C), pages 816-832.

    More about this item

    Keywords

    Stability and Growth Pact; Excessive deficits; Duration analysis; Discrete hazard models;

    JEL classification:

    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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