Author(s): Vitor Gaspar and David Amaglobeli
Date published: Mar 2019
SUERF Policy Note, Issue No 60
by Vitor Gaspar and David Amaglobeli, International Monetary Fund
JEL-codes: E62, H11, H60, H61, H62, H63.
Keywords: Fiscal policy, debt, deficit bias, fiscal rules, fiscal governance.
Fiscal rules are important commitment devices to limit fiscal profligacy. They have been an integral part of the euro area architecture and were introduced to insure against weaknesses in the functioning of the market discipline. Nonetheless, they have failed to provide sufficient fiscal discipline and avoid excessive market volatility. However, despite prevalent noncompliance, rules did – on average – influence the behavior of fiscal authorities. The evidence shows that well-designed rules worked better than others. Elevated debt levels and the record of weak compliance and lax enforcement make fundamental reform of the EU fiscal rules more urgent than ever. These reforms should aim at making the rules simpler and more transparent, and better aligning political incentives with rule compliance.
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