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The Impact of the Stability and Growth Pact on Real Economic


  • Paolo Savona

    (Scuola Superiore di Pubblica Amministrazione - Rome, Italy)

  • Carlo Viviani

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


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, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0403003
    Note: Type of Document - pdf; pages: 19

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    References listed on IDEAS

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    Cited by:

    1. Oldani, Chiara & Savona, Paolo, 2005. "Derivatives, Fiscal Policy and Financial Stability," MPRA Paper 36199, University Library of Munich, Germany.

    More about this item


    Stability Pact; Fiscal Rules; European Union; Ricardian Equivalence;

    JEL classification:

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

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