Implementing the Stability and Growth Pact: Enforcement and Procedural Flexibility
35 Pages Posted: 13 Jan 2006
Date Written: March 2005
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