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the internal market of the EU. This would increase the wedge between members and non-members of the euro area …, causing a full-fledged fiscal crisis in Greece and severe fiscal pressures in other euro-area countries. This has prompted a …
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. Furthermore deficits and surpluses matter less for risk premia in countries with better institutions. This reflects the market …
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Fiscal rules, such as the Excessive Deficit Procedure and the Stability and Growth Pact (SGP), aim at constraining government behavior. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this depends on the...
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