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Improving the SGP: Taxes and Delegation Rather than Fines

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Listed author(s):
  • Lindbeck, Assar

    ()

    (Institute for International Economic Studies, Stockholm University)

  • Niepelt, Dirk

    ()

    (Institute for International Economic Studies, Stockholm University)

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.

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Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 733.

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Length: 24 pages
Date of creation: 14 Dec 2004
Handle: RePEc:hhs:iiessp:0733
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Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden

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Web page: http://www.iies.su.se/

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Keywords: Stability and Growth Pact; spillover effects; policy failures; Pigouvian taxes; policy delegation;

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Find related papers by 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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  1. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-571, October.
  2. Barry Eichengreen, 2004. "Institutions for Fiscal Stability," CESifo Economic Studies, CESifo, vol. 50(1), pages 1-25.
  3. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1999. "Does monetary unification lead to excessive debt accumulation?," Journal of Public Economics, Elsevier, vol. 74(3), pages 299-325, December.
  4. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
  5. Blanchard, Olivier J & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
  6. V. V. Chari & Patrick J. Kehoe, 2003. "On the desirability of fiscal constraints in a monetary union," Staff Report 330, Federal Reserve Bank of Minneapolis.
  7. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 491-534, 07.
  8. Alessandra Casella, 1999. "Tradable deficit permits:efficient implementation of the Stability Pact in the European Monetary Union," Economic Policy, CEPR;CES;MSH, vol. 14(29), pages 321-362, October.
  9. Dixit, Avinash & Lambertini, Luisa, 2001. "Monetary-fiscal policy interactions and commitment versus discretion in a monetary union," European Economic Review, Elsevier, vol. 45(4-6), pages 977-987, May.
  10. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  11. Marco Bassetto, 2006. "Politics and Efficiency of Separating Capital and Ordinary Government Budgets," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1167-1210.
  12. Buiter, Willem H. & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers.
  13. Antonio Fat·s & Ilian Mihov, 2003. "On Constraining Fiscal Policy Discretion in EMU," Oxford Review of Economic Policy, Oxford University Press, vol. 19(1), pages 112-131.
  14. Uhlig, H.F.H.V.S., 2002. "One Money, But Many Fiscal Policies in Europe : What are the Consequences?," Discussion Paper 2002-32, Tilburg University, Center for Economic Research.
  15. Niepelt, Dirk, 2003. "Tax Evasion Dynamics," Seminar Papers 721, Stockholm University, Institute for International Economic Studies.
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Cited by:

  1. Marco Bassetto & Vadym Lepetyuk, 2007. "Government investment and the European stability and growth pact," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 33-43.
  2. Assar Lindbeck, 2006. "Sustainable social spending," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 13(4), pages 303-324, August.
  3. 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.

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