This paper evaluates the Stability and Growth Pact. After examining the rules in place
and the experience so far, the Pact is analysed from a political economy perspective,
focusing on the choice for so-called soft law and drawing inferences from characteristics
of successful fiscal rules at the state level in the United States. It is also examined
whether big and small countries are likely to adhere to fiscal policy rules in place.
Furthermore, the impact of the business cycle on fiscal policy outcomes is analysed.
Finally, the proposals of the European Commission to strengthen the Pact are discussed.
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