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Budgeetary Policies during Recessions : Retrospective Application of the Stability and Growth Pact” to the Post-War Period

  • Marco BUTI

    (Directorate-General For Economic and Financial affairs of the European Commission)

  • Daniele FRANCO

    (Directorate-General For Economic and Financial affairs of the European Commission)

  • Hedwig ONGENA

    (Directorate-General For Economic and Financial affairs of the European Commission)

Solid budgetary discipline is an essential condition for the success of Economic and Monetary Union (EMU). The “Excessive Deficit Procedure” and the “Stability and Growth Pact” allow some flexibility for the conduct of budgetary policies during severe economic slowdowns. The paper examines whether European Union Member States will have to change their budgetary policies carried out during and after severe recessions, once these procedures become fully operational in the third stage of EMU. The results of this analysis suggest that when starting from a budgetary position of close – to balance or in surplus, the risk of breaching the 3% reference value is relatively low during one-year recessions but increases in case of deep or protracted recessions. The early years of EMU, when some countries might still have a deficit of about 2% of GDP, are likely to prove highly problematic in the event of a severe recession

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (REL - Recherches Economiques de Louvain) with number 1997041.

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Length: 45
Date of creation: 01 Dec 1997
Date of revision:
Handle: RePEc:ctl:louvre:1997041
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  1. Canova, Fabio, 1993. "Detrending and Business Cycle Facts," CEPR Discussion Papers 782, C.E.P.R. Discussion Papers.
  2. Willi Leibfritz & Deborah Roseveare & Paul van den Noord, 1994. "Fiscal Policy, Government Debt and Economic Performance," OECD Economics Department Working Papers 144, OECD Publishing.
  3. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
  4. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," IMF Working Papers 96/52, International Monetary Fund.
  5. Claude Giorno & Pete Richardson & Deborah Roseveare & Paul van den Noord, 1995. "Estimating Potential Output, Output Gaps and Structural Budget Balances," OECD Economics Department Working Papers 152, OECD Publishing.
  6. Alesina, Alberto & Perotti, Roberto, 1996. "Fiscal Discipline and the Budget Process," American Economic Review, American Economic Association, vol. 86(2), pages 401-07, May.
  7. Domenico Fanizza & Vito Tanzi, 1995. "Fiscal Deficit and Public Debt in Industrial Countries, 1970-1994," IMF Working Papers 95/49, International Monetary Fund.
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