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Stability Criteria and Convergence: The Role of the System of National Accounts for Fiscal Policy in Europe

  • Tilman Brück
  • Andreas Cors
  • Klaus F. Zimmermann
  • Rudolf Zwiener

The standardisation of the European systems of national accounts has progressed significantly in recent years. Some room for interpretation remains in regard to some accounting standards, the periodicity of the data, and the quality of the forecasts of budget deficits. Yet national accounts data of the eurozone countries are now a reliable basis for macroeconomic policy decisions. The stability and growth pact of the eurozone countries relies heavily on one indicator of fiscal discipline, the budget deficit as a share of gross domestic product. Drawing from simulation evidence of the German economy, it is argued that fulfilling the deficit target is no guarantee for achieving output stabilisation. The pact hence fails to internalise the externalities arising from a decentralised fiscal policy in the European monetary union. The deficit target could be replaced with an expenditure target. Given the macroeconomic policy objectives of the euro economies it would be more appropriate to hand the supervision of an amended stability pact to an independent council of economic experts. Such council could assess the macroeconomic environment more carefully and could have the authority to caution and fine fiscally irresponsible eurozone governments.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38581.de/dp318.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 318.

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Length: 27 p.
Date of creation: 2002
Date of revision:
Handle: RePEc:diw:diwwpp:dp318
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