Ranking Fiscal Policy Rules:The Golden Rule of Public Finance vs. The Stability and Growth Pact
28 Pages Posted: 31 Oct 2005
Date Written: July 2003
The purpose of this note is to compare the characteristics of the actual Stability and Growth Pact with that of a European "modified golden rule." The latter would consist in achieving in each EU country a cyclically-adjusted net-of-public-investment balance. The benchmark for comparison is the classification adopted by Kopits and Symansky (1998) on "ideal fiscal rules." This classification has been used by Buti et al. (2003) in order to demonstrate the "ideal character" of the actual Stability and Growth Pact and thus legitimise only slight modifications to the Pact. I intend to show rather, that the "modified golden rule" is a better fiscal rule than the actual Pact.
Keywords: euro area, fiscal rule, golden rule, Stability and Growth Pact
JEL Classification: E61, H30, H60, H70
Suggested Citation: Suggested Citation