Discussion Paper Details

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Title: Fiscal Policy and Monetary Integration in Europe

Author(s): Jordi Galí and Roberto Perotti

Publication Date: June 2003

Keyword(s): counter-cyclical fiscal policy, european monetary integration, fiscal rules and stabilization policy

Programme Area(s): International Macroeconomics

Abstract: A popular view among economists, policy-makers, and the media, is that the Maastricht Treaty and then Stability and Growth Pact have significantly impaired the ability of EU governments to conduct a stabilizing fiscal policy and to provide an adequate level of public infrastructure. In this Paper, we investigate this view by estimating fiscal rules for the discretionary budget deficit over the period 1980-2002, using data on EMU countries and control groups of non-EMU EU countries and other non-EU OECD countries. We do not find much support for this view. In fact, we find that discretionary fiscal policy in EMU countries has become more counter-cyclical over time, following what appears to be a trend that affects other industrialized countries as well. Similarly, we find that the decline in public investment experienced over the last decade by EMU countries is part of a worldwide trend that started well before the Maastricht Treaty was signed.

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Bibliographic Reference

Galí, J and Perotti, R. 2003. 'Fiscal Policy and Monetary Integration in Europe'. London, Centre for Economic Policy Research.