Reforming Europe's Stability And Growth Pact: Lessons From The American Experience In Macrobudgeting

Proposed and actual reforms to the European Union (EU) Stability and Growth Pact commonly retain the Pact's deficit and debt targets. The American experience with similar macro-budgetary rules suggests that deficit targets may actually act as an incentive for political leaders to engage in noncompliant behavior. If targets were revised to budgetary objectives that politicians could achieve more easily and claim credit for accomplishing, compliance with the new macro-budgetary rules might be increased. Governments of industrialized societies have struggled to keep their public finances under control since the oil shocks and stagflation of the 1970s.