Working Paper: CEPR ID: DP3933
Authors: Jordi Gal; Roberto Perotti
Abstract: A popular view among economists, policy-makers, and the media, is that the Maastricht Treaty and then Stability and Growth Pact have significantly impaired the ability of EU governments to conduct a stabilizing fiscal policy and to provide an adequate level of public infrastructure. In this Paper, we investigate this view by estimating fiscal rules for the discretionary budget deficit over the period 1980-2002, using data on EMU countries and control groups of non-EMU EU countries and other non-EU OECD countries. We do not find much support for this view. In fact, we find that discretionary fiscal policy in EMU countries has become more counter-cyclical over time, following what appears to be a trend that affects other industrialized countries as well. Similarly, we find that the decline in public investment experienced over the last decade by EMU countries is part of a worldwide trend that started well before the Maastricht Treaty was signed.
Keywords: countercyclical fiscal policy; european monetary integration; fiscal rules; stabilization policy
JEL Codes: E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| discretionary fiscal policy in the pre-Maastricht period (E62) | fiscal policy behavior (E62) |
| discretionary fiscal policy in the post-Maastricht period (E62) | fiscal policy behavior (E62) |
| decline in public investment (H54) | broader global trend (F01) |
| Maastricht-related constraints (F55) | discretionary fiscal policy as a countercyclical tool (E62) |
| constraints (D10) | fiscal policy in EMU countries (E62) |