To begin with, let me say that I have enjoyed reading this chapter and I have learned a lot about current issues in the fiscal strand of the ‘political economy’ literature. The three fiscal policy issues surveyed in the chapter concern (i) solvency tests for government debt, (ii) the political determinants of budget deficits, both in theory and practice, and (iii) the controversy over tax smoothing versus balanced budget rules. The insights from this discussion of the literature are then combined in a critical evaluation of the fiscal convergence criteria written into the draft treaty for a European economic and monetary union (EMU). I will start my discussion of the chapter with the three issues above before commenting in more detail on the authors' principle policy recommendations and conclusions for Europe after 1992.

Section 3 of the chapter deals with the sustainability of public debt. Fiscal rules, so it is argued, may have to be enforced if fiscal policies imply unsustainable time-paths for public debt in EC member countries. Sustainability of public debt thereby implies that the present-value budget constraint of the public sector is not violated. This solvency condition is satisfied if the time series of discounted debt is covariance stationary with zero expectation.