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Title: Improving the SGP Through a Proper Accounting of Public Investment

Author(s): Olivier J Blanchard and Francesco Giavazzi

Publication Date: February 2004

Keyword(s): EMU and Stability Pact

Programme Area(s): International Macroeconomics

Abstract: The Stability and Growth Pact (SGP) contains a serious error: the way governments are expected to account for public investment. Correcting this error and applying, as article 104.3 of the EU Treaty allows, the current rules of the Pact to a measure of the budget where the treatment of investment expenditures is done properly would, over time, drive the debt-GDP ratio to the ratio of public capital to GDP. Excluding net public investment from the definition of the budget that is relevant for the Pact would also help in the short run, by inducing countries to shift the composition of domestic demand, rather than to reduce its level.

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Bibliographic Reference

Blanchard, O and Giavazzi, F. 2004. 'Improving the SGP Through a Proper Accounting of Public Investment'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4220