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EUROPEAN ECONOMY EUROPEAN COMMISSION DIRECTORATE-GENERAL FOR ECONOMIC AND FINANCIAL AFFAIRS ECONOMIC PAPERS ISSN 1725-3187 /comm/economy_finance N° 206 July 2004 Fiscal policy in EMU: Rules, discretion and political incentives by Marco Buti and Paul van den Noord (*) Directorate-General for Economic and Financial Affairs Economic Papers are written by the Staff of the Directorate-General for Economic and Financial Affairs, or by experts working in association with them. The Papers are intended to increase awareness of the technical work being done by the staff and to seek comments and suggestions for further analyses. Views expressed represent exclusively the positions of the author and do not necessarily correspond to those of the European Commission. Comments and enquiries should be addressed to the: European Commission Directorate-General for Economic and Financial Affairs Publications BU1 - -1/180 B - 1049 Brussels, Belgium (*)(*) European Commission and OECD, respectively. An earlier draft of this paper was presented at the conference on Rethinking Economic and Social Policies, Madrid, November 26-27, 2003. We are grateful to an anonymous referee for useful comments and suggestions and to the two discussants, Antonio Fátas and Ludger Schuhknecht, and other participants at this conference for a stimulating discussion. We would also like to thank Alessandro Turrini for his valuable comments on an earlier draft. The opinions expressed in thi