Short-Term Monitoring of Fiscal Policy Discipline
European Central Bank (ECB); National Institute of Economic and Social Research (NIESR)
European Central Bank (ECB)
ECB Working Paper No. 152
Under the Maastricht Treaty and the Stability and Growth Pact (SGP) European Union (EU) Member States commit themselves to avoid deficits over 3% of GDP and to pursue in the medium-term budgetary positions close-to-balance or in surplus. The SGP provides also regulation for the surveillance of budgetary positions. An analysis of associated tools is the focus of this paper. In particular, it addresses two open issues in the empirical literature, which are crucial for monitoring fiscal policy discipline in the EU. First, the estimation of the structural component of the balance ratio. Second, the computation, when only annual fiscal data is available, of quarterly budget balance ratios. An econometric model addressing both issues is presented and estimated. Additionally, this framework allows us to answer questions such as: What is the safety margin that will prevent a particular country from reaching with certain probability a budget deficit that breaches the 3%?
Number of Pages in PDF File: 40
Keywords: Structural Deficit Ratio, State Space Modelling, Interpolation
JEL Classification: C32, E60, H62working papers series
Date posted: January 17, 2003
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