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Improving the SGP: Taxes and Delegation rather than Fines

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  • Assar Lindbeck
  • Dirk Niepelt

Abstract

We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an “economic-theory" perspective on optimal corrective measures with the “legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.

Suggested Citation

  • Assar Lindbeck & Dirk Niepelt, 2005. "Improving the SGP: Taxes and Delegation rather than Fines," CESifo Working Paper Series 1389, CESifo.
    • Handle: RePEc:ces:ceswps:_1389
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    Cited by:

    1. Assar Lindbeck, 2006. "Sustainable social spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 303-324, August.
    2. Paolo Biraschi, "undated". "Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals," Working Papers wp2008-7, Department of the Treasury, Ministry of the Economy and of Finance.
    3. Marco Bassetto & Vadym Lepetyuk, 2007. "Government investment and the European stability and growth pact," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 31(Q III), pages 33-43.
    4. Assar Lindbeck & Dirk Niepelt, 2006. "The Stability Pact – Rationales, Problems, Alternatives," Kyklos, Wiley Blackwell, vol. 59(4), pages 579-600, November.

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    More about this item

    Keywords

    Stability and Growth Pact; spillover effects; policy failures; Pigouvian taxes; policy delegation;
    All these keywords.

    JEL classification:

    • 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
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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