Fiscal discipline as a social norm: the European Stability Pact

"This paper reviews the arguments for and against the 'Stability and Growth Pact' signed by the countries of the Euro area. We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite, and equally plausible conclusions...

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Main Authors: Fitoussi, Jean-Paul, Saraceno, Francesco
Institution:ETUI-European Trade Union Institute
Format: TEXT
Language:English
Published: Paris 2007
OFCE
Subjects:
Online Access:https://www.labourline.org/KENTIKA-19133362124919515449-Fiscal-discipline-as-a-social-.htm
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author Fitoussi, Jean-Paul
Saraceno, Francesco
author_facet Fitoussi, Jean-Paul
Saraceno, Francesco
collection Library items
description "This paper reviews the arguments for and against the 'Stability and Growth Pact' signed by the countries of the Euro area. We find the theoretical debate to be inconclusive, as both externality and credibility arguments can be used to yield opposite, and equally plausible conclusions. We also argue that evidence in favour of a Pact-like rule is scant. We therefore suggest the view that the Stability Pact is a public social norm, and that a country's adherence to that norm is in fact a response to the need to preserve reputation among the other members of the European Union. Using this extreme but not implausible hypothesis, we build a simple model similar in spirit to Akerlof's (1980) seminal paper on social norms, and we show that reputation issues may cause the emergence of a stable but inferior equilibrium. We further show that after the enlargement, with a number of countries anxious to prove their 'soundness' joining the club, the problems posed by the pact/social norm are likely to increase."
format TEXT
id 19133362124919515449_b917391c27c940a6aebecde5869b51af
institution ETUI-European Trade Union Institute
is_hierarchy_id 19133362124919515449_b917391c27c940a6aebecde5869b51af
is_hierarchy_title Fiscal discipline as a social norm: the European Stability Pact
language English
physical 30 p.
Digital
publishDate 2007
publisher Paris
OFCE
spellingShingle Fitoussi, Jean-Paul
Saraceno, Francesco
EU enlargement
EU policy
fiscal policy
social norm
Stability Pact
Fiscal discipline as a social norm: the European Stability Pact
thumbnail https://www.labourline.org/Image_prev.jpg?Archive=111753593993
title Fiscal discipline as a social norm: the European Stability Pact
topic EU enlargement
EU policy
fiscal policy
social norm
Stability Pact
url https://www.labourline.org/KENTIKA-19133362124919515449-Fiscal-discipline-as-a-social-.htm