Nor is there consensus concerning the numerical size of these spillover effects. So far
econometric work in this field has difficulty in identifying any major effects, suggesting small
and varying effects over time and over countries.25
Although the EMU is a new construction, the evidence on fiscal federalism dealing with the
experience of stabilization policies in federal states like Canada, Switzerland and the United
States may give guidance concerning the design of the SGP. However, very few of our 101
proposals explicitly refer to the record from federal states. There is a surprising lack of
interest in the literature on fiscal federalism among the proposal-makers, probably reflecting
the bias towards theory at the expense of econometric and historical evidence.26
6. Different country experiences: The multiplicity of proposals also reflects the fact that the
authors originate from different countries with different records on stabilization policy,
deficits and debt and at different stages of the business cycle and with different growth rates.
The macroeconomic situation - its past, present and future - of the authors’ home country
thus influences the design of their proposals. There is a clear small/large country division,
where authors from the large countries in the centre of the euro area, France, Germany and
Italy, are more apt to loosen up the Pact than authors from small countries. There is also a
tendency for more proposals to emanate from countries that are not complying with the SGP,
as seen from our empirical work. The cluster analysis brings out these points.
7. Different views on the political constraint - what is politically feasible? The sub-optimality
ofproposals: Another factor behind the multiplicity is the likelihood that economists differ in
their views on what is politically feasible when designing policy advice. Thus, they choose to
‘optimize’ their recommendations under different constraints. In principle, two economists
may share the same view on what is the first-best solution to a specific problem. However,
they may diverge in opinion when asked to prepare a policy proposal, depending on what they
regard as politically feasible.
Of course, we are not able to derive the first-best solutions held by the authors of the 101
reform proposals. Still, we should be aware that many proposals may be the outcome of ‘sub-
25 See for example Gros and Hobza (2001).
26 Nor are there many references to the literature on international spillovers of domestic policies.
-30-