Playing by the Rules: Reforming Fiscal Governance in Europe
IMF Working Papers, March 24, 2015
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Bibliographic details
- Authors: Luc Eyraud, Tao Wu
- Published: March 24, 2015
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484300282.001
Overview and Purpose
- Contributes to discussions on fiscal governance in Europe.
- Takes stock of recent reforms, identifies areas for further progress, and discusses a menu of policy options for the medium-term.
- Issues covered include: (i) the growing complexity of the European framework and ways to simplify it; (ii) the difficulties to measure and implement structural stance indicators; (iii) the challenge of reconciling fiscal sustainability and growth; (iv) the need to enhance coordination in the area of monitoring; and (v) the obstacles to compliance and proposals to strengthen enforcement.
Major Findings (by theme)
- Growing complexity of the European framework
- The European fiscal framework has become increasingly complex, creating challenges for clarity and implementation.
- The paper discusses ways to simplify the framework to improve usability and transparency.
- Measurement and implementation of structural stance indicators
- There are difficulties to measure and implement structural stance indicators.
- Measurement challenges include reliance on output gap data and potential GDP estimates, and exposure to output gap measurement error.
- Reconciling fiscal sustainability and growth
- Balancing fiscal sustainability and growth objectives is a central challenge addressed in the paper.
- The paper explores policy options aimed at aligning debt and deficit rules with growth-enhancing considerations.
- Coordination in monitoring
- There is a need to enhance coordination in the area of monitoring across member countries and institutions.
- Improved monitoring coordination is presented as important for consistent application of rules and early detection of risks.
- Obstacles to compliance and enforcement
- The paper identifies obstacles to compliance with European fiscal rules.
- Proposals to strengthen enforcement are discussed as a means to improve adherence to rules.
Policy Options and Recommendations
- Presents a menu of policy options for the medium-term focused on:
- Simplifying the European fiscal framework.
- Improving measurement and implementation of structural fiscal stance indicators.
- Reconciling fiscal sustainability requirements with growth priorities.
- Enhancing coordination of monitoring across jurisdictions.
- Strengthening enforcement mechanisms to address obstacles to compliance.