This study applies Taylor's (2000) proposed fiscal rule to EU-15 countries. We show that such a simple, flexible and transparent fiscal rule, if applied to individual EMU countries, could improve the enforceability of the Stability and Growth Pact. This rule is used to compute the structural...

The paper provides an explanation to the adoption of balanced-budget rules by politicians, instead of golden rules. In a model that includes voters' preferences that are skewed by the history of the budget structure, and fiscal rules on the budget, we show that incumbents favor a distorted...