Making The Stability Pact More Flexible: Can It Lead to Procyclical Fiscal Policies?

Mackiewicz, Michał (2005): Making The Stability Pact More Flexible: Can It Lead to Procyclical Fiscal Policies? Published in: Fiscal Studies , Vol. 28, No. 2 (2007): pp. 251-268.

Abstract

One of the often discussed negative aspects of the Stability and Growth Pact is the rigidity of its deficit rule. Several reform proposals aim currently at alleviating the rule in order to allow the automatic stabilizers to operate freely. However, such a reform is likely to cause even further deterioration of fiscal balances in the member countries. The empirical evidence presented in this paper shows that, in the past, increasing the structural deficit had a strong negative impact on a degree of anti-cyclical fiscal stabilization. This suggests that the reform of the Pact, through higher structural deficits, can decrease rather then increase the scope of anti-cyclical fiscal actions in the EMU member countries.

• Item Type: MPRA Paper
• Language: English
• Keywords: fiscal policy; stabilization policy; fiscal rules
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E63 - Comparative or Joint Analysis of Fiscal and Monetary Policy ; Stabilization ; Treasury Policy; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E60 - General

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