Improving the SGP Through a Proper Accounting of Public Investment

Olivier Blanchard () and Francesco Giavazzi ()

No 4220, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: The Stability and Growth Pact (SGP) contains a serious error: the way governments are expected to account for public investment. Correcting this error and applying, as article 104.3 of the EU Treaty allows, the current rules of the Pact to a measure of the budget where the treatment of investment expenditures is done properly would, over time, drive the debt-GDP ratio to the ratio of public capital to GDP. Excluding net public investment from the definition of the budget that is relevant for the Pact would also help in the short run, by inducing countries to shift the composition of domestic demand, rather than to reduce its level.

Keywords: EMU; Stability Pact (search for similar items in EconPapers)
JEL-codes: E62 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2004-02
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