Does Stability and Growth Pact Provide an Adequate and Consistent Fiscal Rule?

Mauro Visaggio ()

Macroeconomics from EconWPA

Abstract: This paper examines the adequacy and the consistency of the fiscal rule set by the Treaty of Maastricht and the Stability and Growth Pact. First, it shows that the functional fiscal rule is adequate in ensuring the final goal of public debt sustainability. Second, it points out that the draw of an arbitrary numerical value is indifferent to reach the final goal even if produces different intergenerational distribution of public debt burden. Finally, it shows that the updated numerical fiscal rule of Stability and Growth Pact removes the inconsistency of the previous numerical fiscal rule – arising for a given set of value of GDP – embodied in the Treaty of Maastricht but at the same time it implies that in the long period public debt has to be retired entirely and consequently imposes a heavy burden on generations living at the time of fiscal adjustment.

JEL-codes: E58 E61 E62 F02 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-mac
Date: 2004-07-06
Note: Type of Document - pdf; pages: 32
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0407008

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