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Stability and Growth Pact: An Index to Trigger an Early Warning Earlier?

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  • Thierry Warin

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Abstract

This paper addresses the question of a technical change in one the components of the Stability and Grown Pact (SGP). Indeed, the SGP is composed of (1) a political commitment, (2) a preventive element, and (3) a dissuasive element, and an improvement of the SGP efficacy can come from any of these three components. In this paper the author proposes a new early warning procedure, part of the preventive element. The ideal situation would be for the European Commission to be able to identify countries at risk as soon as they vote their national budgets. Although this is not possible, as the measures of the deficit are based on GDP forecasts, the conclusion this paper makes is that the EC should avoid relying on GDP forecasts by calculating a reference index.

Suggested Citation

  • Thierry Warin, 2005. "Stability and Growth Pact: An Index to Trigger an Early Warning Earlier?," Middlebury College Working Paper Series 0502, Middlebury College, Department of Economics.
  • Handle: RePEc:mdl:mdlpap:0502
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    File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0502.pdf
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    References listed on IDEAS

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    3. Thierry Warin & Lindsay Wolff, 2005. "EuropeÕs Deficit Free Riders: A Panel Data Analysis," European Political Economy Review, European Political Economy Infrastructure Consortium, vol. 3(Spring), pages 5-17.
    4. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
    5. W. Bolt, 1999. "Fiscal Restraints, ECB Credibility and the Stability Pact:A Game-Theoretic Perspective," DNB Staff Reports (discontinued) 38, Netherlands Central Bank.
    6. Amador, Joao L. M., 2000. "Fiscal Policy and Budget Deficit Stability in a Continuous Time Stochastic Economy," FEUNL Working Paper Series wp384, Universidade Nova de Lisboa, Faculdade de Economia.
    7. Bohn, Henning, 1995. "The Sustainability of Budget Deficits in a Stochastic Economy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 257-271, February.
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    More about this item

    Keywords

    europe; fiscal rule; stability and growth pact; political economics;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • 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
    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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