The EMU Regime and Government Preferences for the Provision of Stabilisation
Impact of Fiscal Policy Conference, p. 303, 2002
34 Pages Posted: 28 Jun 2012
Date Written: March 21, 2001
Abstract
In this paper, we attempt at mapping preferences for 'government provision of stabilisation' – which should be understood as action by governments, past and present, that have a stabilising effect on economic activity - at the national level in the EMU on the basis of some indicators of government activity. We find that the EU Member States exhibit differences as regards 'revealed preferences' for government provision of stabilisation, depending both on 'need' and 'taste' factors. In EMU, with price stability as the nominal anchor, monetary policy dominates fiscal policy and architecture of the Stability and Growth Pact secures balanced budgets at the national level. If it is the case that there exists a 'preference gap,' in the sense that the monetary authority is forgiving on unemployment but non-forgiving on inflation and that the reverse is true for the fiscal authorities, this may put stress in the system and result in an inefficient overall regime.
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