Fiscal discipline and flexibility in EMU: the implementation of the Stability and Growth Pact

Buti, Marco

doi:10.1093/oxrep/14.3.81

Cited by 154 publications

(54 citation statements)

References 9 publications

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“…An (imperfect) indication of the degree of automatic stabilisation is provided by Commission estimates that, on average in Europe, a 1 percentage fall in GDP relative to trend (a one percentage point increase in the output gap) feeds through to a 0.5 percentage point deterioration in the budget position. (See, for example, Buti et al 1998). As is well known, the degree of automatic stabilisation and the sensitivity of the budget to movements in GDP is considerably higher than 0.5 in some high tax countries, such as Sweden and the Netherlands (of the order of 0.6 or 0.7).…”

Section: Macroeconomics Of the Euro Area As A Wholementioning

confidence: 98%

“…One of the worries about the Stability and Growth Pact is that it may limit the operation of the fiscal stabilisers. Buti et al (1998) turned the rhetoric on its head, arguing that that the medium-term provisions of the pact, over the cycle, if met, would allow the fiscal stabilisers to operate as they should. This way of looking at the issues is now, effectively, EU policy-see, for example, European Commission (2001)-and is built into the rhetoric of the ECB which accepts that in the current slowdown, countries that have succeeded in consolidating their fiscal position should allow the fiscal stabilisers to operate (within the asymmetric 3% upper limit): other countries with relatively large deficits or with high debt ratios, should not give up on attaining the objectives of the SGP.…”

Section: Fiscal Issues For the Area As A Wholementioning

confidence: 99%

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The Future of Macroeconomic Policy in the European Union

Allsopp¹

2003

Economic Policy Issues for the Next Decade

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Section: Macroeconomics Of the Euro Area As A Wholementioning

confidence: 98%

Section: Fiscal Issues For the Area As A Wholementioning

confidence: 99%

The Future of Macroeconomic Policy in the European Union

Allsopp¹

2003

Economic Policy Issues for the Next Decade

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“…However, this is not a new debate in the literature of European macroeconomics [7,8]. Rather new are the institutional challenges with respect to a coherent and efficient rule-based economic and fiscal union.…”

Section: Literature Reviewmentioning

confidence: 99%

Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe

Herzog

2016

Economies

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This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient countries more likely consume and default. Second, without ESM loans, indebted countries default anyway. Third, if the probability to be an impatient government is high, then the supply of loans is constrained. In general, sustainable and unsustainable governments should be incentivized differently especially in a supranational monetary union. Finally, I develop policy recommendations for the ongoing debate in the Eurozone.

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“…The SGP was created to enforce fiscal discipline in the Euro-area in order to safeguard the credibility of the ECB (Buti et al, 1998;Eichengreen and Wyplosz, 1998). While the Pact itself was not specifically intended to limit public sector pay excess, it was designed to continue to tie governments' hands, which may have otherwise been inclined to re-engage with expansionary fiscal policies.…”

Section: Iversen and Franzese Neglect The Effect Of Monetary Conservamentioning

confidence: 99%

The Revenge of Baumol’s Cost Disease?: Monetary Union and the Rise of Public Sector Wage Inflation

Johnston

2011

SSRN Journal

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Many political scientists and economists have addressed the implications of the public sector's sheltered status on their unions' wage strategies vis-à-vis the government. Since the public sector is a monopoly provider of necessary and price inelastic services, conventional wisdom suggests that public sector unions' push for wage increases which their productivity does not merit, exacerbating inflation and fiscal deficits. The argument in this paper challenges this conventional view, and maintains that the recent, puzzling rise in public sector wage inflation, relative to that in manufacturing, in Euro-zone countries is an unintended result of the institutional shift towards European Economic and Monetary Union (EMU). During the 1980s and 1990s, differences in wage inflation between the manufacturing and public sector within most EMU candidate-countries were low. After 1999, these differences significantly worsened; wage moderation continued in the manufacturing sector while wage inflation arose in the public sector. It is argued here that monetary union's predecessors, the European Monetary System and Maastricht regimes, imposed two important constraints on public employers, which enhanced their ability to enforce wage moderation: the commitment to a hard currency policy via participation in the Exchange Rate Mechanism, adopted by some earlier than others and, the Maastricht criteria. Monetary union's removal of these two constraints weakened public employers' capability to deny inflationary wage settlements to public sector unions. Panel regressions results outline a statistically significant relationship between monetary union and higher levels of wage inflation in the public sector, relative to manufacturing. The paper concludes with a brief discussion of the implications of monetary union for inter-sectoral dynamics.

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Fiscal discipline and flexibility in EMU: the implementation of the Stability and Growth Pact

Cited by 154 publications

References 9 publications

The Future of Macroeconomic Policy in the European Union

The Future of Macroeconomic Policy in the European Union

Modelling Monetary and Fiscal Governance in the Wake of the Sovereign Debt Crisis in Europe

The Revenge of Baumol’s Cost Disease?: Monetary Union and the Rise of Public Sector Wage Inflation

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