An early criticism of the Stability and Growth Pact has pointed to its asymmetric nature and the weak mechanisms to prevent politically-motivated fiscal policies: its constraints would bite in downswings but not in upswings, especially if in the latter the electoral cycle increases the...

It is often claimed that tax and welfare reforms that aim at enhancing efficiency may come at the cost of cyclical stabilisation. Reducing the generosity of welfare systems and lowering taxes may boost efficiency and output, and improve market adjustment to shocks. But, by reducing the size of...

Over the past several decades, public debt has increased substantially in many OECD countries, particularly in the aftermath of recessions. The extent of this increase and the resulting debt levels varied across countries, partly reflecting differences in average budget balances. Despite rising...

The aim of this paper is to assess the ability of social spending to smooth output shocks and to provide stabilization. The results show that overall social spending is able to smooth about 16 percent of a shock to GDP. Among its subcategories, social spending devoted to Old Age and Unemployment...

The recent reform of the Stability and Growth Pact provides more leeway for EU governments to temporarily breach the 3% deficit limit if this facilitates the implementation of initially expensive reforms. But the implementation of this principle is not obvious as budgets would need to specify...

Brazil has made considerable progress in recent years towards consolidating macroeconomic stability, which is a key framework condition for sustained growth. Monetary policy continues to respond swiftly to changes in the inflation outlook, anchoring expectations. Fiscal policy has been guided by...

There is growing interest in the role of independent fiscal institutions, or fiscal councils, in helping to improve fiscal performance. This paper provides some guidance on the scope for improving fiscal performance through fiscal councils based on the available literature and the range of...

The world is recovering from the worst crisis since the Great Depression, leaving a strong and lasting impact on Member countries’ public finances. This paper analyses how sub-central governments (SCG) are affected and how fiscal policy has reacted in the first months after the outbreak of the...

The 2005 reform of the EU Stability and Growth Pact has provided leeway for governments to let their fiscal deficit temporarily breach the 3% rule to finance the immediate budgetary cost of structural reform, such as compensation schemes to offset redistributive effects. Against this backdrop,...

Conventionally, fiscal policy analysis makes a distinction between "discretionary" budget changes and "built-in stability". This distinction is the first step to defining a structural budget balance operationally. Budget deficits vary automatically with the business cycle. Revenues automatically...