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Peer Pressure and Fiscal Rules

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Report on the State of the European Union

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Abstract

In a seminal contribution on fair wages and unemployment, Akerlof (1980) showed that social norms can persist, even when costly to follow for individuals, if disobedience entails a loss of reputation. This chapter extends to public behaviour the argument developed by Akerlof. We maintain that public social norms may limit the ability of national governments to manoeuvre when building and managing an economic and monetary union, and yet survive because of reputation considerations. More specifically, the public social norm we consider in this chapter is the Stability and Growth Pact (SGP), signed in 1997 by the countries participating in the European Monetary Union.

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Authors
  1. Jean-Paul Fitoussi
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  2. Francesco Saraceno
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Jean-Paul Fitoussi Jacques Le Cacheux

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© 2010 OFCE

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Fitoussi, JP., Saraceno, F. (2010). Peer Pressure and Fiscal Rules. In: Fitoussi, JP., Le Cacheux, J. (eds) Report on the State of the European Union. Palgrave Macmillan, London. https://doi.org/10.1057/9780230276130_4

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