Searching for the optimal EMU fiscal rule:an ex-post analysis of the SGP reform proposals

Paolo Biraschi ()

Working Papers from Department of the Treasury, Ministry of the Economy and of Finance

Abstract: Over last decades the study of fiscal policy rules has attracted a growing attention from researchers and policy-makers. The case of European Monetary Union is a clear example. However, even before its inception, the Stability and Growth Pact has been a source of inspiration for a large number of policy recommendations. The heated political and academic debate intervened after the Ecofin Council's decision on November 2003 and mostly concluded in March 2005 with the Spring European Council's conclusions has revealed the institutional and theoretical weaknesses of EMU rule-based system. This paper provides an ex-post analysis of the Pact by indicating a different qualitative and pragmatic approach to judge the most relevant and known SGP reforms; furthermore, it highlights the direction along which any modification of the Pact would have been successfully implemented and offers useful insights also to test the robustness of the new SGP. After revisiting the main characteristics of a fully effective rule-based framework and taking into account the specificity of EMU economic policy set up, we evaluate in a systematic way, through a multivariate statistical analysis, about 100 proposals for reforming the SGP presented by professional academic and non-academic economists prior to April 2005. Despite these large number of proposals, however, principal component analysis outcomes show that only few reforms could have been effectively considered a real improvement of the previous version of SGP, the others reflecting the traditional dilemma between credibility and effectiveness aspects of budgetary rules.

Keywords: Fiscal rules; Fiscal policy; Stability and Growth Pact; European Union Monetary; Principal Component Analysis (search for similar items in EconPapers)
JEL-codes: C82 E62 H62 (search for similar items in EconPapers)
Pages: 42
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.dt.tesoro.it/modules/documenti_it/anali ... EMU-fiscal-rule1.pdf (application/pdf)

Related works:
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:itt:wpaper:wp2008-7

Access Statistics for this paper

More papers in Working Papers from Department of the Treasury, Ministry of the Economy and of Finance Contact information at EDIRC.
Bibliographic data for series maintained by Michele Petrocelli ( this e-mail address is bad, please contact ).