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Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance?

Paola Monperrus-Veroni and Francesco Saraceno ()

No 2005-01, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

Abstract: This paper aims at providing a quantitative assessment of different proposals for reforming the Stability and Growth Pact by extending a counterfactual experiment performed in Eichengreen and Wyplosz (1998). Using estimated coefficients from a reduced form model, we simulate the path of the output gap for the largest Euro zone countries (France, Germany, Italy) after imposing limits to structural deficit according to different fiscal rules (structural deficit rules, golden rules and rules that incorporate the stock of debt). For each of these countries we can rank the different reform proposals in terms of output loss over the period considered. Our analysis has the merit of using a uniform method and hence allow a comparison across countries and across rules. The main results of the experiment, which emerge robustly, are (a), that the golden rule would be the most beneficial both using individual country's criteria and global criteria; and (b) that the status quo, the Maastricht rule, is less restrictive than many currently debated alternatives.

Keywords: Stability Pact; Golden Rule; European Union; Institutional Reform; Fiscal Rules (search for similar items in EconPapers)
JEL-codes: E62 E63 H62 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-cmp, nep-eec, nep-mac and nep-pbe
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