Fiscal policies, public deficit retraints and European stabilization

Frédérique Bec and Jean-Olivier Hairault

No 1996035, Discussion Papers (REL - Recherches Economiques de Louvain) from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

Abstract: The ability of fiscal policies to smooth macroeconomic fluctuations under the constraints imposed by the Maastricht Treaty is at the heart of the current policy debate in Europe. A two-country intertemporal stochastic general equilibrium model is used in order to evaluate the efficiency of fiscal policy. First, it reveals the importance of the nature of the shocks hitting European countries: asymmetrical shocks actually strengthen the national fluctuations. Then, constraints on public deficit imposed by the Maastricht Treaty limit the ability of national governements to stabilize their economies. Furthermore, they can lead the European countries to adopt pro-cyclical budget rules.

JEL-codes: E32 F41 H87 (search for similar items in EconPapers)
Pages: 27
Date: 1996-09-01
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