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THE MACROECONOMIC EFFECTS OF RE-APPLYING THE EU FISCAL RULES: RETURNING TO THE STATUS QUO ANTE OR MOVING TO EXPENDITURE RULES?

Published online by Cambridge University Press:  06 September 2023

Christoph Paetz  and
Sebastian Watzka
Christoph Paetz
Affiliation:
Institut für Makroökonomie und Konjunkturforschung (IMK), Düsseldorf, Germany
Sebastian Watzka*
Affiliation:
Institut für Makroökonomie und Konjunkturforschung (IMK), Düsseldorf, Germany
*
Corresponding author: Sebastian Watzka; Email: sebastian-watzka@boeckler.de
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Abstract

Against the background of the European Commission’s reform plans of the Stability and Growth Pact, this paper uses NiGEM to simulate the macroeconomic implications of re-applying the fiscal rules in 2024. Next to returning to the unreformed rules, the most prominent options include an expenditure rule. Our results indicate that re-applying the unreformed rules leads to severe cuts in public spending. An expenditure rule would, however, not necessarily alleviate the fiscal adjustment burden. Instead, our simulations show that great care must be taken to specify the expenditure rule, such that fiscal consolidation is achieved in a growth-friendly way.

Keywords

EU fiscal rulesstability and growth pactexpenditure rulesE17E63H60
Type
Research Article
Information
National Institute Economic Review , Volume 264 , Summer 2023 , pp. 59 - 74
Copyright
© The Author(s), 2023. Published by Cambridge University Press on behalf of National Institute Economic Review

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