Empirica

, Volume 30, Issue 1, pp 25–38 | Cite as

Can the Stability and Growth Pact in EMU Cause Budget Deficit Cycles?

  • Richard Hule
  • Matthias Sutter
Article

Abstract

We study whether the Stability and Growth Pact (SGP) in EuropeanMonetary Union (EMU) can induce budget deficit cycles. The SGP provides a framework forsanctioning EMU-memberswith excessive deficits. If a government's optimal deficitpolicy is above the deficit threshold which triggers penalties then the deficit will be higherwith the SGP in force than without. The SGP may even induce deficit cycles in the sense thata government switches its optimal deficit between the threshold provided by the SGP and aneven larger deficit.

Budget deficits deficit cycles European Monetary Union Stability and Growth Pact 

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Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Richard Hule
    • 1
  • Matthias Sutter
    • 1
  1. 1.University of InnsbruckInnsbruckAustria

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