Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility

Beetsma, Roel M. W. J.; Debrun, Xavier

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Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility

IMF Working Paper No. 05/59

35 Pages Posted: 13 Jan 2006

See all articles by Roel M. W. J. Beetsma

Roel M. W. J. Beetsma

University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); European Commission; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute; Netspar

Xavier Debrun

International Monetary Fund (IMF) - Research Department

There are 3 versions of this paper

Date Written: March 2005

Abstract

The paper analyzes some key policy trade-offs involved in the implementation of the Stability and Growth Pact. Greater procedural flexibility in the Pact`s implementation may improve welfare. Procedural flexibility designates the enforcer`s room to apply judgment on underlying policies and to set a consolidation path that does not discourage high-quality measures. Budgetary opaqueness may hinder the qualitative assessment of fiscal policy; therefore, better monitoring and greater transparency would increase the benefits from procedural flexibility. Overall, a simple deficit rule with conditional procedural flexibility can contain excessive deficits, lower unproductive spending, and increase high-quality outlays.

Keywords: Fiscal rules, Stability and Growth Pact, procedural flexibility, deficits, structural reforms

JEL Classification: E62, H6

Suggested Citation: Suggested Citation

Beetsma, Roel M. W. J. and Debrun, Xavier, Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility (March 2005). IMF Working Paper No. 05/59, Available at SSRN: https://ssrn.com/abstract=874281