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Fiscal rules in the euro area and lessons from other monetary unions

Nadine Leiner-Killinger and Carolin Nerlich

Economic Bulletin Articles, 2019, vol. 3

Abstract: This article compares the fiscal rule framework in the euro area with the frameworks in the fiscally more integrated United States and Switzerland, with the aim of drawing lessons for ways in which fiscal rules could be reformed in European Economic and Monetary Union (EMU). Both the United States and Switzerland have a history of balanced budget rules that help stabilise government debt in individual states/cantons at moderate and broadly comparable levels. The recent shift towards balanced budget rules in the euro area is an important achievement in this direction, and has contributed to better average underlying budgetary positions. Still, the fiscal rule framework needs to be rendered more effective in reducing high levels of government debt and their dispersion across the euro area. Reducing the heterogeneity of government debt positions is also an important prerequisite for setting up a well-governed common macroeconomic stabilisation function at the centre of EMU in case of deep economic crises. This in turn would help to contain the procyclicality of fiscal rules at the country level. JEL Classification: H61, H74, H77

Keywords: fiscal federalism; National fiscal rules; Stability and Growth Pact (search for similar items in EconPapers)
Date: 2019-04
Note: 564550
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