Implementing the stability and growth pact: enforcement and procedural flexibility

Roel Beetsma and Xavier Debrun

No 433, Working Paper Series from European Central Bank

Abstract: The paper proposes a theoretical analysis illustrating some key policy trade-offs involved in the implementation of a rules-based fiscal framework reminiscent of the Stability and Growth Pact (SGP). The analysis offers some insights on the current debate about the SGP. Specifically, greater "procedural" flexibility in the implementation of existing rules may improve welfare, thus increasing the Pact's political acceptability. Here, procedural flexibility designates the enforcer's room to apply well-informed judgment on the basis of underlying policies and to set a consolidation path that does not discourage high-quality policy measures. Yet budgetary opaqueness may hinder the qualitative assessment of fiscal policy, possibly destroying the case for flexibility. Also, improved budget monitoring and greater transparency increase the benefits from greater procedural flexibility. Overall, we establish that a fiscal pact based on a simple deficit rule with conditional procedural flexibility can simultaneously contain excessive deficits, lower unproductive spending and increase high-quality outlays. JEL Classification: E62, H6

Keywords: deficits; fiscal rules; procedural flexibility; Stability and Growth Pact; structural reforms (search for similar items in EconPapers)
Date: 2005-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp433.pdf (application/pdf)

Related works:
Working Paper: Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility (2005)
Working Paper: Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:2005433

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank 60640 Frankfurt am Main, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Official Publications ().