Debt, Deficits and Transition to EMU: A Small Country Analysis

Svend E. Hougaard Jensen*, Lars Grue Jensen

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


This paper studies some macroeconomic effects in a small open economy of the fiscal policy rules implied by the Maastricht convergence criteria. The focus is upon the adjustment process in the run-up to EMU. Two country-specific shocks leading to higher public debts are considered: a fall in the tax revenue (relevant to an early pre-EMU stage) and a fall in aggregate demand (relevant to all stages of EMU). The results are found to depend crucially on the speed of adjustment of government expenditures and the priority given to debt reduction. However, meeting the public finance requirements may seriously undermine the stabilization function of fiscal policy.
Original languageEnglish
JournalEuropean Journal of Political Economy
Issue number1
Pages (from-to)3-25
Number of pages23
Publication statusPublished - Mar 1995


  • Monetary union
  • Fiscal policy
  • Asymmetric shocks

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