[Article] EMU: Optimal Fiscal Strategy and the Punishment Effectiveness

Research Article_s Economics

This paper investigates the ability of the Stability and Growth Pact to prevent governments in the “euro zone” from running excessive budget deficits.

Radu Vranceanu , Thierry Warin https://www.warin.ca (HEC Montréal and CIRANO (Canada))https://www.hec.ca/en/profs/thierry.warin.html
02-17-2003

Abstract

This paper investigates the ability of the Stability and Growth Pact to prevent governments in the “euro zone” from running excessive budget deficits. It is shown that in a static two‐country game, the Pareto‐optimal strategy of no excess deficits cannot be systematically enforced, whatever the toughness of the sanction under the Pact. However, in a multiperiod setting, the Pareto‐optimal configuration of no excess deficits would prevail even if no sanctions were applied to deviant governments. In this case, neither a heavily punitive SGP, nor a centralized budget appears to be helpful in the EMU context.


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Citation

For attribution, please cite this work as

Vranceanu & Warin, "www.warin.ca: [Article] EMU: Optimal Fiscal Strategy and the Punishment Effectiveness", Review of International Economics, 2003

BibTeX citation

@article{vranceanu2003[article],
  author = {Vranceanu, Radu and Warin, Thierry},
  title = {www.warin.ca: [Article] EMU: Optimal Fiscal Strategy and the Punishment Effectiveness},
  journal = {Review of International Economics},
  year = {2003},
  note = {https://warin.ca/posts/article-emu-optimal-fiscal/},
  doi = {10.1111/1467-9396.00295}
}