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

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, "Thierry Warin: [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 = {Thierry Warin: [Article] EMU: Optimal Fiscal Strategy and the Punishment Effectiveness},
  journal = {Review of International Economics},
  year = {2003},
  note = {https://warin.ca/posts/article-emu-optimalfiscal/},
  doi = {10.1111/1467-9396.00295}
}