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...

Reforms aiming at lowering the tax burden and cutting social benefits may boost efficiency and output, and improve market adjustment to shocks, but, by reducing the size of automatic stabilisers, may also imply less cyclical smoothing. This would be problematic in EMU given the loss of national...

The fiscal philosophy of EMU's budgetary rules is to bring deficits close to balance and then let automatic stabilisers play freely. Given the large tax and benefit systems in Europe, relying mainly on automatic stabilisation would allow a relatively high degree of cyclical smoothing while...

Fiscal consolidation will go too far if it pushes the economy towards a ?bad equilibrium? with high and growing fiscal deficits and debt, high risk premia on sovereign debt, slumping economic activity and plummeting confidence. In this paper we examine the possible conditions under which fiscal...

In this paper we develop a simple analytical framework to analyze “good” and “bad equilibria” in public-debt and growth dynamics. The “bad equilibrium” is characterised by the simultaneous occurrence, and adverse feedbacks between, high and growing fiscal deficits and debt, high risk...

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,...

The UK medium-term budgetary framework introduced in 1997 addressed a number of weaknesses of the former regime, notably a bias against capital expenditure and, more generally, poor conditions for longerterm planning adversely affecting central government spending departments, local authorities...

This paper highlights some key policy issues regarding the performance of public expenditure and proposes an analytical framework for its assessment. The framework distinguishes three economic objectives of policies in the pursuit of better performance of public expenditure: macroeconomic...