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Making The Stability Pact More Flexible: Can It Lead to Procyclical Fiscal Policies?

  • Mackiewicz, Michał

One of the often discussed negative aspects of the Stability and Growth Pact is the rigidity of its deficit rule. Several reform proposals aim currently at alleviating the rule in order to allow the automatic stabilizers to operate freely. However, such a reform is likely to cause even further deterioration of fiscal balances in the member countries. The empirical evidence presented in this paper shows that, in the past, increasing the structural deficit had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This suggests that the reform of the Pact, through higher structural deficits, can decrease rather then increase the scope of anti-cyclical fiscal actions in the EMU member countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16033.

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Date of creation: Jan 2005
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Publication status: Published in Fiscal Studies 2.28(2007): pp. 251-268
Handle: RePEc:pra:mprapa:16033
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  1. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  2. Fabio Canova & Evi Pappa, 2005. "Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints," NBER Working Papers 11065, National Bureau of Economic Research, Inc.
  3. Alberto Alesina & Guido Tabellini, 2005. "Why Is Fiscal Policy Often Procyclical?," Working Papers 297, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  4. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
  5. Arellano, M, 1987. "Computing Robust Standard Errors for Within-Groups Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 49(4), pages 431-34, November.
  6. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  7. Philip R. Lane, 2002. "The Cyclical Behaviour of Fiscal Policy: Evidence from the OECD," Trinity Economics Papers 20022, Trinity College Dublin, Department of Economics.
  8. Fabrizio Balassone & Daniela Monacelli, 2000. "EMU fiscal rules: Is there a gap?," Temi di discussione (Economic working papers) 375, Bank of Italy, Economic Research and International Relations Area.
  9. repec:ner:tilbur:urn:nbn:nl:ui:12-152958 is not listed on IDEAS
  10. Judson, Ruth A. & Owen, Ann L., 1999. "Estimating dynamic panel data models: a guide for macroeconomists," Economics Letters, Elsevier, vol. 65(1), pages 9-15, October.
  11. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
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