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EU fiscal rules: issues and lessons from political economy

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  • Schuknecht, Ludger

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. JEL Classification: D7, H3, H6

Suggested Citation

  • Schuknecht, Ludger, 2004. "EU fiscal rules: issues and lessons from political economy," Working Paper Series 421, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:2004421
    Note: 175489
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp421.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    deficits; fiscal rules; institutional reform; political economy; Stability and Growth Pact;
    All these keywords.

    JEL classification:

    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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