Hostname: page-component-8448b6f56d-c4f8m Total loading time: 0 Render date: 2024-04-23T10:51:02.411Z Has data issue: false hasContentIssue false
  • English
  • Français

Budgetary Policies during Recessions Retrospective Application of the “Stability and Growth Pact” to the Post-War Period

Published online by Cambridge University Press:  17 August 2016

Marco Buti ,
Daniele Franco  and
Hedwig Ongena
Marco Buti
Affiliation:
Directorate-General for Economic and Financial affairs of the European Commission
Daniele Franco
Affiliation:
Directorate-General for Economic and Financial affairs of the European Commission
Hedwig Ongena
Affiliation:
Directorate-General for Economic and Financial affairs of the European Commission
Get access

Summary

Solid budgetary discipline is an essential condition for the success of Economic and Monetary Union (EMU). The “Excessive Deficit Procedure” and the “Stability and Growth Pact” allow some flexibility for the conduct of budgetary policies during severe economic slowdowns. The paper examines whether European Union Member States will have to change their budgetary policies carried out during and after severe recessions, once these procedures become fully operational in the third stage of EMU. The results of this analysis suggest that, when starting from a budgetary position of close-to balance or in surplus, the risk of breaching the 3% reference value is relatively low during one-year recessions but increases in case of deep or protracted recessions. The early years of EMU, when some countries might still have a deficit of about 2% of GDP, are likely to prove highly problematic in the event of a severe recession.

Résumé

Résumé

Une discipline budgétaire rigoureuse est une condition essentielle pour le succès de l'Union Economique et Monétaire (UEM). La Procédure concernant les déficits excessifs et le Pacte de stabilité et de croissance permettent une certaine flexibilité pour la conduite des politiques budgétaires durant des périodes de ralentissement sévère de l'activité économique. Ce papier examine si les états membres de l'Union européenne devront changer leurs politiques budgétaires effectuées durant et après des récessions sévères, une fois ces procédures devenues opérationnelles au cours de la troisième phase de l'UEM. Les résultats de cette analyse suggèrent qu' en partant d'une position budgétaire proche de l'équilibre ou excédentaire, le risque de dépasser la valeur de référence de 3% est relativement bas pour les récessions d'une durée d'un an mais augmente en cas de récessions profondes ou prolongées. Les premières années de l'UEM, alors que certains pays pourraient encore avoir un déficit autour de 2% du PIB, seraient probablement très problématiques en cas de récession sévère.

Keywords

E62H60E62H60
Type
Research Article
Information
Recherches Économiques de Louvain/ Louvain Economic Review , Volume 63 , Issue 4 , 1997 , pp. 321 - 366
Copyright
Copyright © Université catholique de Louvain, Institut de recherches économiques et sociales 1997 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

(*)

The views expressed in the paper are those of the authors and do not commit the Commission nor the Commission services. The authors wish to thank DG II colleagues, a number of economists in national administrations and central banks, as well an anonymous referee for useful comments. T. Munzi and J. Pockrandt provided excellent research assistance.

References

REFERENCES

Alesina, A. and Perotti, R. [1995a], The political economy of budget deficits, IMF Staff Papers, 42(1), pp. 1–31.Google Scholar
Alesina, A. and Perotti, R. [1995b], Fiscal expansions and adjustments in OECD Countries, Economic Policy, n° 21.Google Scholar
Alesina, A. and Perotti, R. [1996a], Budget deficits and budget institutions, IMF Working Paper n° 52, May.Google Scholar
Alesina, A. and Perotti, R. [1996b], Fiscal discipline and the budget process, American Economic Review Papers & Proceedings, 86(2), pp. 401–407.Google Scholar
Bayoijmi, T. and Elchengreen, B. [1995], Restraining yourself: the implications of fiscal rules for economic stabilization, IMF Staff Papers, 42(1), pp. 32–49.Google Scholar
Blanchard, O. [1990], Suggestions for a new set of fiscal indicators, OECD Department of Economics and Statistics Working Papers n° 79.Google Scholar
Blanchard, O., Chouraqui, J-C., Hagemann, R.P. and Sartor, N. [1990], The sustainability of fiscal policy: new answers to an old question, Economic Studies, OECD, n° 15, pp. 7–36.Google Scholar
Bredenkamp, H. [1988], The cyclically adjusted deficit as a measure of fiscal stance, U.K. Treasury, mimeo.Google Scholar
Canova, F. [1993], Detrending and business cycle facts, CEPR Discussion Paper n°782.Google Scholar
Commission of the European Communities, [1995], Technical note: the Commission services' method for the cyclical adjustment of government budget balances, European Economy, n ° 60, pp. 35–90.Google Scholar
Corsetti, G. and Roubini, N. [1996], European versus American perspectives on balanced-budget rules, American Economic Review Papers & Proceedings, 86(2), pp. 408–413.Google Scholar
Dawes, M. and Hurst, M. [1992], The effects of the cycle on public expenditure, UK Treasury internal paper.Google Scholar
De HAAN, J., Sterks, C.G.M. and De KAM, C.A. [1992], Towards budget discipline: an economic assessment of the possibilities for reducing national deficits in the run-up to EMU, Economic Papers, European Commission (DG II), n ° 99.Google Scholar
Giorno, Cl., Richardson, P., Roseveare, D. and van den Noord, P. [1995], Estimating potential output, output gaps and structural budget balances, OECD Economics Department Working Papers n° 152.Google Scholar
Grilli, V, Masciandaro, D. and Tabellini, G. [1991], Political and monetary institutions and public financial policies in the industrial countries, Economic Policy, n° 13.Google Scholar
Hahm, S.D., Kamletand, M.S. and Mowery, D.C. [1995], Influence on deficit spending in industrialized countries, Journal of Public Policy, n015, pp. 183–197.Google Scholar
IMF [1993], Structural budget indicators for the major industrial countries, World Economic Outlook, October, pp. 99–103.Google Scholar
Leibfritz, W., Roseveare, D. and van den Noord, P. [1994], Fiscal Policy, Government Debt and Economic Performance, Economic Department Working Papers, OECD, n° 144.Google Scholar
MéLITZ, J. [1996], The evidence about the costs and benefits of EMU, mimeo, May.Google Scholar
OECD [1977], Economic Surveys - Austria, Paris.Google Scholar
OECD, [1978], Economic Surveys - Austria, Paris.Google Scholar
OECD, [1993], Automatic stabilisers: their extent and role, Economic Outlook, n° 53, pp. 37–4.Google Scholar
Perotti, R. [1996a], Fiscal consolidation in Europe: composition matters, American Economic Review Papers and Proceedings, 86(2), pp. 105–110.Google Scholar
Perotti, R. [1996b], Fiscal policy when things are going badly, paper presented at the CEPII DELTA Workshop on “The macroeconomic effects of fiscal adjustment”, Paris, September.Google Scholar
Tanzi, V. and Fanizza, D. [1995], Fiscal deficit and public debt in industrial countries, 1970–1994, IMF Working Paper n° 49, May.Google Scholar
Von Hagen, J., [1992], Budgeting procedures and fiscal performance in the EC, Economic Papers, European Commission (DG II), n° 96, October.Google Scholar
Von Hagen, J. and Harden, I., [1994], National budget processes and fiscal performance, European Economy Reports & Studies, n° 3.Google Scholar