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

Svend E. Hougaard Jensen; Lars Grue Jensen

doi:10.1016/0176-2680(94)00053-M

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

Svend E. Hougaard Jensen^*, Lars Grue Jensen

^*Corresponding author for this work

Department of Economics

COWI A/S

Research output: Contribution to journal › Journal article › Research › peer-review

Abstract

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 language	English
Journal	European Journal of Political Economy
Volume	11
Issue number	1
Pages (from-to)	3-25
Number of pages	23
ISSN	0176-2680
DOIs	https://doi.org/10.1016/0176-2680(94)00053-M
Publication status	Published - Mar 1995

Keywords

Monetary union
Fiscal policy
Asymmetric shocks

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Cite this

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

abstract = "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.",

keywords = "Monetary union, Fiscal policy, Asymmetric shocks, Monetary union, Fiscal policy, Asymmetric shocks",

author = "{Hougaard Jensen}, {Svend E.} and {Grue Jensen}, Lars",

year = "1995",

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T1 - Debt, Deficits and Transition to EMU

T2 - A Small Country Analysis

AU - Hougaard Jensen, Svend E.

AU - Grue Jensen, Lars

PY - 1995/3

Y1 - 1995/3

N2 - 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.

AB - 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.

KW - Monetary union

KW - Fiscal policy

KW - Asymmetric shocks

KW - Monetary union

KW - Fiscal policy

KW - Asymmetric shocks

U2 - 10.1016/0176-2680(94)00053-M

DO - 10.1016/0176-2680(94)00053-M

M3 - Journal article

SN - 0176-2680

VL - 11

SP - 3

EP - 25

JO - European Journal of Political Economy

JF - European Journal of Political Economy

IS - 1

ER -