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The Impact of the Stability and Growth Pact on Real Economic

Author

Listed:
  • Paolo Savona

    (Scuola Superiore di Pubblica Amministrazione - Rome, Italy)

  • Carlo Viviani

    (LUISS 'Guido Carli' University - Rome, Italy)

Abstract

The recession under way in the European Union and the threat of deflation have spawned increasing frequent calls for modification of the Stability and Growth Pact. The present article confirms the negative correlation of the rate of real output growth with that of increase in current public expenditure, but finds a positive correlation of growth with the rate of increase in public capital spending, private investment, tax to GDP ratio, and an indicator of the net profit rate. The policy prescription is for the urgent modification of the rules of the Pact, exempting public investment from its constraints subject to the assessment of the Ecofin Council. The markets would be receptive to such a change if the EU instituted clear new rules, not just reinterpreting those now in being under the pressure of contingent factors. On this basis, we find that Italy's economic crisis is due in part to the misconceived fiscal and monetary policy rules of the European Union.

Suggested Citation

  • Paolo Savona & Carlo Viviani, 2004. "The Impact of the Stability and Growth Pact on Real Economic," Public Economics 0403003, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwppe:0403003
    Note: Type of Document - pdf; pages: 19
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/pe/papers/0403/0403003.pdf
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    Citations

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    Cited by:

    1. Hodžić, Sabina & Bečić, Emira, 2015. "Analysis of the Fiscal Rule Index in EU Member States," Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference (2015), Kotor, Montengero, in: Proceedings of the ENTRENOVA - ENTerprise REsearch InNOVAtion Conference, Kotor, Montengero, 10-11 September 2015, pages 431-438, IRENET - Society for Advancing Innovation and Research in Economy, Zagreb.
    2. Castro, Vitor, 2011. "The impact of the European Union fiscal rules on economic growth," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 313-326, June.
    3. Oldani, Chiara & Savona, Paolo, 2005. "Derivatives, Fiscal Policy and Financial Stability," MPRA Paper 36199, University Library of Munich, Germany.

    More about this item

    Keywords

    Stability Pact; Fiscal Rules; European Union; Ricardian Equivalence;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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