THE POLITICAL-ECONOMY OF FISCAL RESTRICTIONS - IMPLICATIONS FOR EUROPE FROM THE UNITED-STATES

This paper analyzes fiscal restrictions in the United States as a way of shedding light on the likely effects of the excessive deficits provisions of the Maastricht Treaty. We consider their impact on levels of deficits, on the cost of borrowing, and on the stabilization function of fiscal policy. If U.S. experience is any guide, Maastricht's fiscal restraints are enforceable, but if vigorously enforced they could significantly diminish the stabilization capacity of national budgets.