Taxes and Delegation Rather than Fines
29 Pages Posted: 28 Jan 2005
Date Written: January 2005
Abstract
We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.
Keywords: Stability and Growth Pact, spillover effects, policy failures, Pigouvian taxes, policy delegation
JEL Classification: E63, F33, F42, H60
Suggested Citation: Suggested Citation
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