What prospects for European fiscal policy?

Abstract

This article investigates the potential contribution of a supranational fiscal automatic stabilisation mechanism to the architecture of European fiscal policy. Having briefly reviewed the literature on the subject, we report on a simulation of such a mechanism – on the basis of the one suggested by Garatti (2003) [Garatti, A. (2003) 'Implications des chocs communs et specifiques pour le federalisme budgetaire europeen', Economie Internationale, no. 93, 1er trimestre, pp.89-116.] – for the period 1995-2005 covering nine Eurozone countries. In conclusion, it is argued that its establishment would make the European Union more homogeneous and would make it less painful for member states to comply with the convergence criteria, especially in view of the enlargement(s) of the Eurozone that will take place in future.