<Para ID="Par1">With the new European fiscal compact, fiscal rules requiring balanced budgets net of the annual cyclical component have been introduced to limit growth in the ratio of debt to GDP. The objection may arise that such rules would have an adverse effect, especially in the long run on employment and...</para>

With the new European fiscal compact, fiscal rules of budget balance over the cycle have been introduced to limit the growth of the debt ratio to GDP. The objection may arise that they would have an adverse effect, especially in the long run on employment and growth. We test the proposition...