Working Paper No. 633

Improving the SGP: Taxes and Delegation rather than Fines

Published: December 14, 2004Pages: 24Keywords: Stability and Growth Pact; Spillover Effects; Policy Failures; Pigouvian Taxes; Policy Delegation JEL-codes: E63; F33; F42; H60

Improving the SGP: Taxes and Delegation rather than Fines Assar Lindbeck and Dirk Niepelt


We analyze motivations for, and possible alternatives to, the Stability and Growth Pact (SGP). With regard to the former, we identify domestic policy failures and various cross-country spillover effects; with regard to the latter, we contrast an "economic-theory" perspective on optimal corrective measures with the "legalistic" perspective adopted in the SGP. We discuss the advantages of replacing the Pact's rigid rules backed by fines with corrective taxes (as far as spillover effects are concerned) and procedural rules and limited delegation of fiscal powers (as far as domestic policy failures are concerned). This would not only enhance the efficiency of the Pact, but also render it easier to enforce.

 

Assar Lindbeck

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Interdisciplinary European Studies

The European Union in a Changing World Order

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This book explores how the European Union responds to the ongoing challenges to the liberal international order. These challenges arise both within the EU itself and beyond its borders, and put into question the values of free trade and liberal democracy. 

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