Working Paper: CEPR ID: DP5830
Authors: Marco Buti; Andr Sapir
Abstract: During the ?Golden Age? that lasted until the mid-1970s, Europe witnessed a "public finance" phase, when the three sides of Musgrave?s triangle - allocative efficiency, redistribution and cyclical stabilisation - seemed to reinforce one another. EMU's fiscal rules - embodied in the Maastricht Treaty and the Stability and Growth Pact - can be regarded as the attempt by European governments to overcome the subsequent "public choice" phase à la Buchanan which was characterised by increasing budget deficits and trade offs between allocative efficiency and redistribution. The original Stability Pact delivered only partly. A rigorous enforcement of the reformed Pact will depend on two conditions: the renewed ownership of the rules by key players and the relative weight of the perceived negative externalities of fiscal misbehaviour versus the political costs of attempting to limit the partner countries? room for manoeuvre.
Keywords: Fiscal Policy; EMU; Stability Pact
JEL Codes: E6; H3; H6
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Original Stability Pact (E63) | Fiscal discipline (E62) |
| Insufficient political ownership (P26) | Deterioration of fiscal balances (H69) |
| SGP design (C93) | Budgetary discipline (H61) |
| SGP design (C93) | Expansionary fiscal policies (E62) |
| Reforms of SGP in 2005 (E69) | Sustainable public finances (H69) |
| External economic pressures (F69) | Enforcement of fiscal rules (E62) |