The Role of the 'Quality of Public Finances' in the Context of the Reformed Stability and Growth Pact

Abstract

Hoppner and Kastrop discuss the issue of quality in public expenditure in the framework of the Stability and Growth Pact. Their starting point is the reform of the Pact that has taken place in 2005. They summarise the main problems that led to the reform and argue that fiscal rules based only on quantitative indicators rather than on economic analyses of fiscal policies could lead to incorrect policy recommendations and objectives. They point out that the problem is to translate the theoretically appealing concept of high-quality public finances into operational indications. To this end they suggest that the general structure of expenditure should be considered along with an assessment of the necessary structural reforms. Drawing up an agreed methodology to determine non-mechanistic assessments of fiscal positions should be the way forward. Such an agreement should lead to general policy guidelines agreed at European level.