Patching up the Pact: some Suggestions for Enhancing Fiscal Sustainability and Macroeconomic Stability in an Enlarged European Union

Willem Hendrik Buiter and Clemens Grafe

No 3496, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The paper considers the implications for the EU accession candidates of Central and Eastern Europe of the fiscal-financial constraints imposed by the Stability and Growth Pact and the Maastricht Treaty. Our findings apply also to those current EU members whose initial conditions (e.g. infrastructure and progress in state pension reform) or other structural characteristics (e.g. demographic structure, growth potential, Balassa-Samuelson equilibrium real exchange rate appreciation) differ significantly from the EU average. We find the existing criteria to be seriously flawed and propose an alternative rule, the Permanent Balance Rule, based on a strong from of tax smoothing.

Keywords: EU accession; fiscal sustainability; golden rule; stability and growth pact; tax smoothing (search for similar items in EconPapers)
JEL-codes: E32 E42 E61 E62 E63 F33 F42 H62 H87 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ifn, nep-mac and nep-pke
Date: 2002-08
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