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"Close to Balance or in Surplus": A Policy Maker's Guide to the Implementation of the Stability and Growth Pact

  • Artis, Michael J
  • Buti, Marco

Under the Stability and Growth Pact, countries are committed to achieving medium-term budget positions of “close to balance or in surplus”. The rationale for this commitment is that such budgetary positions would allow for the full working of the built-in stabilizers without triggering the sanction procedures of the Pact. The paper sets out to show how quantifications of the medium-term (‘structural’) requirement can accommodate the desired aim and suggests how fiscal measurement and forecasting errors as well as the budgetary effects of ageing may be allowed for. All in all, broadly balanced budgets in the medium term appear to be ‘roughly right’ for most euro-area countries. Of course, as the cyclical behaviour of the euro-area economy adapts to the new EMU environment, the medium-term targets will need to be re-addressed.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 2515.

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Date of creation: Jul 2000
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Handle: RePEc:cpr:ceprdp:2515
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  18. Arreaza, A. & Sorensen, B.E. & Yosha, O., 1997. "Consumption Smoothing Through Fiscal Policy in OECD and EU Countries," Papers 37-97, Tel Aviv.
  19. Thomas Dalsgaard & Alain de Serres, 1999. "Estimating Prudent Budgetary Margins for 11 EU Countries: A Simulated SVAR Model Approach," OECD Economics Department Working Papers 216, OECD Publishing.
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  21. Roberto Perotti, 1999. "Fiscal Policy In Good Times And Bad," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1399-1436, November.
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  25. Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
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