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Socio-economic development and fiscal policy: lessons from the cohesion countries for the new member states

Aaron Mehrotra and Tuomas Peltonen ()

No 467, Working Paper Series from European Central Bank

Abstract: This paper examines the link between socio-economic development and fiscal policy. We introduce an indicator for socio-economic development (SEDI) and investigate its relationship with different fiscal variables, using data for the cohesion countries, namely Greece, Portugal, Spain and Ireland for 1980-1999. We find that an improvement in the net lending position of the government, as well as a fall in the level of public debt, would be beneficial for socio-economic development in the medium term. Furthermore, fiscal consolidation is found to be more relevant for promoting socio-economic development in the cohesion countries than in the other EU-15 Member States. Our results provide support for incentives to curb spending, such as the fiscal criteria of the Maastricht Treaty or the Stability and Growth Pact. JEL Classification: H6, H5, I0

Keywords: EU enlargement; Fiscal consolidation; socio-economic development; Stability and Growth Pact (search for similar items in EconPapers)
Date: 2005-04
Note: 355041
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