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Fiscal Discipline for Growth: The Remedy or the Illusion in the Context of the Euro Area Crisis

Author

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  • Sinan Sönmez

    (Atilim University)

Abstract

Ever since the outbreak of the sovereign debt crisis, coordinating economic growth with fiscal sustainability has been on the European agenda. Fiscal consolidation calls for fiscal sustainability and austerity programs. But at present economic contraction/recession is the main problem, particularly in the Euro area. The problem has therefore transformed to one of combining and/or coordinating economic growth with fiscal sustainability. As fiscal discipline is a pivotal element of macroeconomic stability and fiscal sustainability, it is necessary to focus on fiscal rules and fiscal consolidation. Fiscal discipline in fact plays the main role in achieving fiscal and public debt sustainability. The approach that is currently in vogue is based on rules-based fiscal policy. It is in this context that rules-based fiscal policies continue to be implemented throughout the globe. The question to be answered, therefore, is whether economic growth and fiscal discipline can be reconciled? In other words, how does one engage the economy on a growth path in the context of fiscal austerity? In times of financial and economic crisis can fiscal rules and discipline be considered a universal prescription to overcome macroeconomic distortions and open the door to economic growth, or is this just an illusion? This paper investigates the problem of coordinating economic growth with fiscal sustainability and discipline.

Suggested Citation

  • Sinan Sönmez, 2013. "Fiscal Discipline for Growth: The Remedy or the Illusion in the Context of the Euro Area Crisis," EY International Congress on Economics I (EYC2013), October 24-25, 2013, Ankara, Turkey 233, Ekonomik Yaklasim Association.
    • Handle: RePEc:eyd:cp2013:233
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    File URL: http://www.ekonomikyaklasim.org/eyc2013/?download=Paper%20233.pdf
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    References listed on IDEAS

    as
    1. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    2. repec:hrv:faseco:34729976 is not listed on IDEAS
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    More about this item

    Keywords

    Fiscal Discipline; Austerity; Fiscal Compact; Growth; Euro Area Crisis;

    JEL classification:

    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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