101 Proposals to reform the Stability and Growth Pact. Why so many? A Survey



makers.19 Alternatively, we may talk about an optimistic and pessimistic approach to fiscal
policy-making where the optimists (the welfare view) tend to believe in the capacity of well-
intentioned policy-makers while the pessimists (the political economy view) doubt their
intentions as well as their capacity to carry out the proper policies.

The picture becomes still more complex when we consider that fiscal policy is not solely
focused on stabilization or fiscal discipline, but also on issues of allocation and distribution.
This implies that issues of trade-offs between ‘fairness’ (distribution) usually emerge when
fiscal stabilization measures are considered. This is hardly the case with the ruling monetary
policy paradigm of today.

Although no common fiscal policy paradigm exists today, this fact is not explicitly considered
by any contributor as far as we can see. The standard approach is the following: each author
adopts his/her model following his/her paradigm, without mentioning any of the many
alternatives, and then proceeds to produce a reform proposal. Very few of the policy
proposals even bother to define explicitly what is meant by fiscal policy. From this we are
tempted to conclude that most of the economists that have contributed to the SGP debate tend
to be truly one-armed and one-eyed.

4. Lack of empirical evidence: Another reason for the multiplicity of proposals is the fact that
few authors use empirical evidence, including econometric results, concerning the efficacy of
fiscal policy in support of their proposals. Of course, if the economist focuses solely on the
sign of the effects of fiscal policy measures, in practice he or she becomes unconstrained by
numbers. Such an attitude will allow for a larger supply of recommendations.

The secondary role of econometric evidence among the proposals most likely reflects genuine
disagreement among economists regarding the actual effects of fiscal policy measures. In
short, the optimism about the impact of fiscal policy has been in decline since at least the
1970s and has now been replaced by pessimism.20 Estimates of fiscal multipliers range from
close to zero to about one. The debate about non-Keynesian effects of fiscal policy suggests
negative multipliers, implying that contractionary fiscal measures may be expansionary under
certain circumstances. Solid estimates of the effects of expenditure changes, tax changes, and

19 For an exposition of the theoretical and empirical arguments for constraining fiscal policy-makers, see among
others Fatas and Mihov (2002) and Wyplosz (2005).

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