Working Paper: NBER ID: w9773
Authors: Jordi Galí; Roberto Perotti
Abstract: A popular view among economists, policymakers, 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 countercyclical 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 world-wide trend that started well before the Maastricht Treaty was signed.
Keywords: Fiscal Policy; Monetary Integration; EMU; Maastricht Treaty; Stability and Growth Pact
JEL Codes: E32; E62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pre-Maastricht period (F36) | discretionary fiscal policy (E62) |
| post-Maastricht period (F36) | discretionary fiscal policy (E62) |
| Maastricht Treaty (MT) (F15) | discretionary budget deficit (H62) |
| Stability and Growth Pact (SGP) (E63) | discretionary budget deficit (H62) |
| Maastricht Treaty (MT) (F15) | public investment (H54) |
| Stability and Growth Pact (SGP) (E63) | public investment (H54) |