Reforming the Stability and Growth Pact

IMF Policy Discussion Papers, February 1, 2005

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A rules-based fiscal framework, such as the EU’s Stability and Growth Pact (SGP), can be an important bulwark against short-sighted policies.
Although policies have improved following the SGP’s adoption, shortcomings remain.
These shortcomings are rooted in the policies rather than the rules; few changes to the rules seem necessary.
The Excessive Deficit Procedure (EDP) needs a stronger focus on policies rather than outcomes, while remaining operationally simple and transparent.
Reforms are needed to foster time-consistent national policies, budgetary transparency, and ownership of the Pact.

Strengthen the Excessive Deficit Procedure by emphasizing the assessment of policies rather than focusing solely on outcomes.
Maintain operational simplicity and transparency in any EDP reform.
Promote time-consistent national fiscal policies to reduce deficit bias.
Increase budgetary transparency across member states.
Enhance ownership of the Pact at the national level:
- Parliaments should debate national Stability Programs.
- National fiscal councils should review national Stability Programs for parliaments.

Subject: Data processing; Economic and financial statistics; Fiscal governance; Fiscal policy; Fiscal rules; Macrostructural analysis; Structural reforms
Keywords: CBS rule; country ownership; Data processing; deficit bias; deficit target; Europe; excessive deficit; Fiscal governance; Fiscal policy; fiscal rules; PDP; political economy; reduction path; SGP reform debate; SGP regulation; Structural reforms

_pdp02 - Section III argues that fiscal rules are important to stem time-inconsistent, short-sighted
- _pdp02 - Section III argues that fiscal rules are important to stem time-inconsistent, short-sighted (Markdown version)
- _pdp02 - Section III argues that fiscal rules are important to stem time-inconsistent, short-sighted (PDF)