Assessing a safety margin for the fiscal deficit vis-a-vis the EMU ceiling

The Maastricht Treaty imposes a 3% ceiling for the fiscal deficit of EMU-member states. Allowance for business cycle fluctuations implies that the average deficit should be smaller. The order of magnitude of the necessary safety margin for The Netherlands is assessed using a time-series analysis of...

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Bibliographic Details
Published inDe Economist (Netherlands) Vol. 146; no. 3; pp. 501 - 507
Main Authors Roodenburg, Hans, Janssen, Reijer, ter Rele, Harry
Format Journal Article
LanguageEnglish
Published New York Springer Nature B.V 01.10.1998
Subjects
Budget deficit
Deficits
Economic models
European Monetary Union
Fiscal policy
GDP
Gross Domestic Product
Growth rates
Maastricht Treaty
Monte Carlo simulation
Netherlands
Studies
Time series
Netherlands
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Summary:The Maastricht Treaty imposes a 3% ceiling for the fiscal deficit of EMU-member states. Allowance for business cycle fluctuations implies that the average deficit should be smaller. The order of magnitude of the necessary safety margin for The Netherlands is assessed using a time-series analysis of GDP data. The analysis indicates that the 3% ceiling has a 91% probability not to be violated if the budget is based on a cautious scenario of 2% GDP growth per year, and the projected deficit is set on a course to move to 0.5% in 2002. However, this analysis does not allow for a flexible policy response.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0013-063X
1572-9982
DOI:10.1023/A:1003252013357