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Implementing the Stability and Growth Pact; Enforcement and Procedural Flexibility

  • Roel M. W. J. Beetsma
  • Xavier Debrun

The paper analyzes some key policy trade-offs involved in the implementation of the Stability and Growth Pact. Greater "procedural" flexibility in the Pact's implementation may improve welfare. Procedural flexibility designates the enforcer's room to apply judgment on underlying policies and to set a consolidation path that does not discourage high-quality measures. Budgetary opaqueness may hinder the qualitative assessment of fiscal policy; therefore, better monitoring and greater transparency would increase the benefits from procedural flexibility. Overall, a simple deficit rule with conditional procedural flexibility can contain excessive deficits, lower unproductive spending, and increase high-quality outlays.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/59.

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Length: 34
Date of creation: 01 Mar 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/59
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  1. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
  2. Milesi-Ferretti, Gian Maria, 2001. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting," CEPR Discussion Papers 2663, C.E.P.R. Discussion Papers.
  3. von Hagen, Jürgen & Wolff, Guntram B., 2004. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series 1: Economic Studies 2004,38, Deutsche Bundesbank, Research Centre.
  4. Hughes Hallett, Andrew & Jensen, Svend E. Hougaard, 2001. "Currency unions and the incentive to reform: are market mechanisms enough?," The North American Journal of Economics and Finance, Elsevier, vol. 12(2), pages 139-155, July.
  5. Olivier Blanchard, 2004. "The Economic Future of Europe," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 3-26, Fall.
  6. Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 0421, European Central Bank.
  7. Roel M. W. J. Beetsma & Xavier Debrun, 2003. "Reconciling Stability and Growth; Smart Pacts and Structural Reforms," IMF Working Papers 03/174, International Monetary Fund.
  8. Sibert, Anne & Sutherland, Alan, 2000. "Monetary union and labor market reform," Journal of International Economics, Elsevier, vol. 51(2), pages 421-435, August.
  9. Francesca Castellani & Xavier Debrun, 2001. "Central Bank Independence and the Design of Fiscal Institutions," IMF Working Papers 01/205, International Monetary Fund.
  10. Sibert, Anne, 1999. "Monetary Integration and Economic Reform," Economic Journal, Royal Economic Society, vol. 109(452), pages 78-92, January.
  11. Beetsma, Roel & Uhlig, Harald, 1999. "An Analysis of the Stability and Growth Pact," Economic Journal, Royal Economic Society, vol. 109(458), pages 546-71, October.
  12. Robert A. J. Dur & Ben D. Peletier & Otto H. Swank, 1999. "Voting on the Budget Deficit: Comment," American Economic Review, American Economic Association, vol. 89(5), pages 1377-1381, December.
  13. Hallett, Andrew Hughes & Jensen, Svend E. Hougaard & Richter, Christian, 2005. "The European economy at the cross roads: Structural reforms, fiscal constraints, and the Lisbon Agenda," Research in International Business and Finance, Elsevier, vol. 19(2), pages 229-250, June.
  14. 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.
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