Can rainy-day funds make a difference in Europe?

The Bank of Italy has published a paper looking at whether rainy-day funds, which US states (who usually have to balance their budgets) use to limit procyclical fiscal policies, have a role to play in European fiscal policy.

The research indicates that rainy day funds would not significantly alter the incentive problems at the root of the difficulties in the implementation of the stability and growth pact, which calls on EU member states to keep budget deficits below 3% of GDP and national debt

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