Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility

Roel Beetsma and Xavier Debrun

No 5005, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper proposes a theoretical analysis illustrating some key policy trade-offs involved in the implementation of a rules-based fiscal framework reminiscent of the Stability and Growth Pact (SGP). The analysis offers some insights on the current debate about the SGP. Specifically, greater ?procedural? flexibility in the implementation of existing rules may improve welfare, thus making the Pact more easily acceptable to euro area Member States. Here, procedural flexibility designates the enforcer?s room to apply well-informed judgment on the basis of underlying policies and to set a consolidation path that does not discourage high-quality policy measures. Yet budgetary opaqueness may hinder the qualitative assessment of fiscal policy, possibly destroying the case for flexibility. Also, improved budget monitoring and greater transparency increase the benefits from greater procedural flexibility. Overall, we establish that a fiscal pact based on a simple deficit rule with conditional procedural flexibility can simultaneously contain excessive deficits, lower unproductive spending and increase high-quality outlays.

Keywords: Fiscal rules; Stability and growth pact; Procedural flexibility; Deficits; Structural reforms (search for similar items in EconPapers)
JEL-codes: E62 H60 (search for similar items in EconPapers)
Date: 2005-04
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Working Paper: Implementing the stability and growth pact: enforcement and procedural flexibility (2005)
Working Paper: Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility (2005)
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