EU Fiscal Rules: Issues and Lessons from Political Economy

38 Pages Posted: 20 Dec 2004

Date Written: December 2004

Abstract

The paper analyses the EU fiscal rules from a political economy perspective and derives some policy lessons. Following a literature survey, the paper stresses the importance of appropriate incentives for rule compliance in an environment where national fiscal sovereignty precludes the option of centralised enforcement. In addition, the paper stresses the importance of clear and simple rules and in particular the 3% deficit limit in anchoring expectations of fiscal discipline and facilitating public and market monitoring of public finances. This, in turn, strengthens incentive for rule compliance. Moreover, the paper discusses the interests of the most important players in European fiscal rule formation and the importance of choosing the appropriate time for initiating a reform debate.

Keywords: political economy, fiscal rules, Stability and Growth Pact, deficits, institutional reform

JEL Classification: D7, H3, H6

Suggested Citation

Schuknecht, Ludger, EU Fiscal Rules: Issues and Lessons from Political Economy (December 2004). Available at SSRN: https://ssrn.com/abstract=631661 or http://dx.doi.org/10.2139/ssrn.631661

Ludger Schuknecht (Contact Author)

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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