NBER WORKING PAPER SERIES FISCAL strongPOLICYstrong AND MONETARY.pdf

NBER WORKING PAPER SERIES FISCAL POLICY AND MONETARY INTEGRATION IN EUROPE Jordi Gali Roberto Perotti Working Paper 9773 /papers/w9773 NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2003 Paper prepared for the Economic Policy meeting in Athens, April 2003. We thank the editor Giuseppe Bertola, three anonymous referees, Alberto Alesina, Sandro Momigliano, and participants at Macro Workshops at CREI-UPF and the European University Institute for comments and discussions. We thank Gabriele Giudice and Jonas Fischer for providing the European Commission data on fiscal policy. Peter Clayes provided excellent research assistance. The views expressed herein are those of the authors and not necessarily those of the National Bureau of Economic Research. ©2003 by Jordi Gali and Roberto Perotti. All rights reserved. Short sections of text not to exceed two paragraphs, may be quoted without explicit permission provided that full credit including © notice, is given to the source. Fiscal Policy and Monetary Integration in Europe Jordi Gali and Roberto Perotti NBER Working Paper No. 9773 June 2003 JEL No. E32, E62 ABSTRACT A popular view among economists, policymakers, and the media, is that the Maastricht Treaty and then Stability and Growth Pact have significantly impaired the ability of EU governments to conduct a stabilizing fiscal policy and to provide an adequate level of public infrastructure. In this paper, we inves