Policy paper 4 – The (output) gaps in the SGP

Institute of Public Policy releases here its fourth Policy Paper: The (output) gaps in the SGP, by Henrique Lopes Valença.

This paper, motivated by the paramount position of the SGP in the European economic integration process, critically analyses recent developments in the public debate about this matter, namely, the discussion over the flexibility of existing rules. This paper concludes that the recent Commission Communication on “[m]aking the best use of the flexibility within the existing rules of the Stability and Growth Pact” emphasises the ubiquity of the problematic concept of output gap in the SGP. Following an investigation on the main shortcomings of this concept, this paper argues that this concept should be abandoned and the SGP should evolve into a Fiscal Scoreboard that would complement the existing Macroeconomic Imbalances Procedure Scoreboard, and contribute to a deeper understanding of (latent) fiscal imbalances of member states.