An inquiry into the (mis)measurement of the fiscal stance in the EU

The Stability and Growth Pact raises the question of whether the European Commission's method for assessing the fiscal stance is grounded on a 'sound' logic. This paper provides an intuitive but not trivial discussion on the main theoretical aspects ahead of the measurement of fiscal policy in the EU We also survey the theory and empirics of the macroeconomic impact of fiscal changes, with a special emphasis on the recent 'non-Keynesian' results. Our main point is that the guardians of the Pact have inherited the main mistake of academics, namely a non-systematic perspective on the monetary-fiscal policy mix.