Why do bigger countries have more problems with the Stability and Growth Pact?
The European Fiscal Framework and the Stability and Growth Pact (SGP) have had great significance since the completion of the European Monetary Union (EMU) in 1999. The current enforcement and credibility problems, and discussion about reforming the SGP, as well as the failure to impose sanctions and early warnings against states in breach of the Pact, have introduced a new subject for economic research. One of the most surprising observations in recent years is that the larger countries in the EMU have more problems with the budget thresholds in the SGP than the smaller countries. To explain this 'stylized fact' we solve a model of 'rational' delay in consolidation and relate it to several economic and political variables. The model shows that larger governments tend to prefer slower consolidation because they are not concerned about the risk of breaching the SGP and face less output volatility. Moreover we solve in the theoretical model one unexplored phenomenon in empirical macroeconomics: why does larger government size imply less macroeconomic volatility? We demonstrate this approach and its results with current empirical data on the performance of the EMU and the SGP.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Platz der Göttinger Sieben 3, 37073 Göttingen|
Web page: http://www.cege.wiso.uni-goettingen.de/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bodo HERZOG, . "European Monetary Union and Fiscal Policy Sustainability," EcoMod2004 330600067, EcoMod.
- Alberto Alesina & Enrico Spolaore, 1997.
"On the Number and Size of Nations,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(4), pages 1027-1056.
- Xavier Debrun, 2000. "Fiscal Rules in a Monetary Union: A Short-Run Analysis," Open Economies Review, Springer, vol. 11(4), pages 323-358, October.
- Alberto Alesina & Allan Drazen, 1989.
"Why are Stabilizations Delayed?,"
NBER Working Papers
3053, National Bureau of Economic Research, Inc.
- Beetsma, Roel & Jensen, Henrik, 2003. "Contingent deficit sanctions and moral hazard with a stability pact," Journal of International Economics, Elsevier, vol. 61(1), pages 187-208, October.
- Wacziarg, Romain & Alesina, Alberto, 1998.
"Openness, Country Size and Government,"
4553014, Harvard University Department of Economics.
- Dani Rodrik, 1998.
"Why Do More Open Economies Have Bigger Governments?,"
Journal of Political Economy,
University of Chicago Press, vol. 106(5), pages 997-1032, October.
- Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
- Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
- Allan Drazen & Paul R. Masson, 1993.
"Credibility of Policies versus Credibility of Policymakers,"
NBER Working Papers
4448, National Bureau of Economic Research, Inc.
- Allan Drazen & Paul R. Masson, 1994. "Credibility of Policies Versus Credibility of Policymakers," The Quarterly Journal of Economics, Oxford University Press, vol. 109(3), pages 735-754.
- Paul R. Masson & Allan Drazen, 1994. "Credibility of Policies Versus Credibility of Policymakers," IMF Working Papers 94/49, International Monetary Fund.
- Marco Buti & Paul van den Noord, 2004. "Fiscal policy in EMU: Rules, discretion and political incentives," European Economy - Economic Papers 206, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- 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.
- Corsetti, Giancarlo & Roubini, Nouriel, 1996. "European versus American Perspectives on Balanced-Budget Rules," American Economic Review, American Economic Association, vol. 86(2), pages 408-13, May.
- Fatas, Antonio & Mihov, Ilian, 2001.
"Government size and automatic stabilizers: international and intranational evidence,"
Journal of International Economics,
Elsevier, vol. 55(1), pages 3-28, October.
- Fatás, Antonio & Mihov, Ilian, 1999. "Government Size and Automatic Stabilizers: International and Intranational Evidence," CEPR Discussion Papers 2259, C.E.P.R. Discussion Papers.
- Buti, Marco & Franco, Daniele & Ongena, Hedwig, 1998. "Fiscal Discipline and Flexibility in EMU: The Implementation of the Stability and Growth Pact," Oxford Review of Economic Policy, Oxford University Press, vol. 14(3), pages 81-97, Autumn.
- Barro, Robert J. & Gordon, David B., 1983.
"Rules, discretion and reputation in a model of monetary policy,"
Journal of Monetary Economics,
Elsevier, vol. 12(1), pages 101-121.
- Robert J. Barro & David B. Gordon, 1983. "Rules, Discretion and Reputation in a Model of Monetary Policy," NBER Working Papers 1079, National Bureau of Economic Research, Inc.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- J. de Haan & H. Berger & D. Jansen, 2003.
"The end of the stability and growth pact?,"
WO Research Memoranda (discontinued)
748, Netherlands Central Bank, Research Department.
- Ohr, Renate & Schmidt, André, 2003. "Der Stabilitäts- und Wachstumspakt im Zielkonflikt zwischen fiskalischer Flexibilität und Glaubwürdigkeit: Ein Reformansatz unter Berücksichtigung konstitutionen- und institutionenökonomischer Aspekte," Center for European, Governance and Economic Development Research Discussion Papers 19, University of Goettingen, Department of Economics.
- Henning Bohn, 1998. "The Behavior of U. S. Public Debt and Deficits," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 949-963.
- Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 427-442, December.
When requesting a correction, please mention this item's handle: RePEc:zbw:cegedp:40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.