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The Economic Importance of Fiscal Rules

In: The Travails of the Eurozone

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  • Michael J. Artis
  • Luca Onorante

Abstract

The European Council of 22–23 March 2005 agreed on some long-awaited reforms of the Stability and Growth Pact (SGP). The Pact includes two Council regulations: Regulation 1466/97 on the strengthening of budgetary surveillance and coordination of economic policies (the so-called ‘preventive arm’), and Regulation 1467/97 on the excessive deficit procedure (the co-called ‘corrective arm’). In applying to both arms of the Pact the reforms are in principle quite comprehensive and they appear also to be quite detailed and complex. The objective of this chapter is to provide an assessment of these reforms, using an empirically based model to do so. The background to the reforms and analysis of the economic rationale for a fiscal pact of the type represented by the SGP can be found in, for example, Calmfors (2005) and Beetsma and Debrun (2006). The working paper versions of this chapter (Artis and Onorante, 2006a, 2006b) also contain a review of these important issues. However the main business of the current chapter is to lay out and estimate an empirical model which can be used to simulate the effects of alternative fiscal rules, including both the reformed and the pre-reform versions of the SGP. We begin by identifying the agreed amendments to the two ‘arms’ of the old Pact that constitute the reforms agreed upon.

Suggested Citation

  • Michael J. Artis & Luca Onorante, 2007. "The Economic Importance of Fiscal Rules," Palgrave Macmillan Books, in: David Cobham (ed.), The Travails of the Eurozone, chapter 6, pages 123-145, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-80147-9_6
    DOI: 10.1057/9780230801479_6
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    Cited by:

    1. Muscatelli, Vito A. & Natale, Piergiovanna & Tirelli, Patrizio, 2012. "A simple and flexible alternative to Stability and Growth Pact deficit ceilings. Is it at hand?," European Journal of Political Economy, Elsevier, vol. 28(1), pages 14-26.
    2. Marco Ratto & Werner Roeger & Jan in 't Veld, 2008. "QUEST III: an estimated DSGE model of the euro area with fiscal and monetary policy," European Economy - Economic Papers 2008 - 2015 335, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Hodžić, Sabina & Bečić, Emira, 2015. "Analysis of the Fiscal Rule Index in EU Member States," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2015), Kotor, Montengero, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Kotor, Montengero, 10-11 September 2015, pages 431-438, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    4. Castro, Vitor, 2011. "The impact of the European Union fiscal rules on economic growth," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 313-326, June.
    5. Ratto Marco & Roeger Werner & Veld Jan, 2006. "Fiscal Policy in an estimated open-economy model for the EURO area," Computing in Economics and Finance 2006 43, Society for Computational Economics.
    6. Pirvu, Daniela & Dutu, Amalia & Enachescu, Carmen, 2019. "Analysing Of Government'S Fiscal Behaviour In The Eu Member States Through Clustering Procedure," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(1), pages 23-39.

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    More about this item

    Keywords

    Monetary Policy; Fiscal Policy; Demand Shock; Automatic Stabiliser; Growth Pact;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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