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

Michal Mackiewicz ()

Macroeconomics from University Library of Munich, Germany

Abstract: One of the most often discussed features of the Stability and Growth Pact is the rigidity of its 3% deficit rule. In the recent time several reform proposals aim at alleviating the rule in order to allow more room for the automatic stabilizers to operate. As the 3% limit became in the recent years the only binding (at least partially) rule of the Pact’s framework, such a reform is likely to cause even further deterioration of the member countries’ fiscal balances. The empirical evidence presented in the paper shows that in the past lowering the structural budget surplus had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This, in turn, suggests that the Pact’s reform, through higher structural deficits, is likely to decrease, rather then increase, the scope of anti-cyclical fiscal actions undertaken by the EMU member countries.

Keywords: fiscal policy; stabilization policy; fiscal rules; Stability and Growth Pact (search for similar items in EconPapers)
JEL-codes: E60 E63 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2005-05-25
New Economics Papers: this item is included in nep-mac
Note: Type of Document - pdf; pages: 12
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0505023

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