Towards Expenditure Rules and Fiscal Sanity in the Euro Area

50 Pages Posted: 16 Nov 2010

See all articles by Sebastian Hauptmeier

Sebastian Hauptmeier

European Central Bank (ECB) - Directorate General Economics

Antonio Jesus Sanchez Fuentes

Universidad Complutense de Madrid (UCM); Universidad Complutense de Madrid (UCM) - Institute of International Studies (ICEI)

Ludger Schuknecht

European Central Bank (ECB)

Date Written: November 15, 2010

Abstract

The study looks at primary expenditure developments in the euro area, its three largest members and four “macro-imbalances” countries for the period 1999-2009. It compares actual expenditure trends with those that would have prevailed if countries had followed neutral policies based on expenditure rules since the start of EMU. It also calculates the implications for debt trends. It finds that, all sample countries except Germany applied expansionary expenditure policies. This resulted in much higher expenditure and debt paths compared to a counterfactual neutral expenditure stance. Simple and prudent rules-based spending policies could have led to much safer fiscal positions much more in line with the EU’s Stability and Growth Pact rules.

Keywords: Expenditure Policies, Public Debt, Expenditure Rules, Sustainability, Fiscal Stance

JEL Classification: E17, E61, E65, H50, H60

Suggested Citation

Hauptmeier, Sebastian and Sanchez Fuentes, Antonio Jesus and Schuknecht, Ludger, Towards Expenditure Rules and Fiscal Sanity in the Euro Area (November 15, 2010). ECB Working Paper No. 1266, Available at SSRN: https://ssrn.com/abstract=1702806

Sebastian Hauptmeier (Contact Author)

European Central Bank (ECB) - Directorate General Economics ( email )

Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany

Antonio Jesus Sanchez Fuentes

Universidad Complutense de Madrid (UCM) ( email )

Madrid, 28040
Spain

Universidad Complutense de Madrid (UCM) - Institute of International Studies (ICEI) ( email )

Collado Villalba, Madrid, 28400
United States

Ludger Schuknecht

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany
+49 69 1344 6494 (Phone)
+49 69 1344 7809 (Fax)

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