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A dynamic rule applied to the threshold imposed on the European budgetary deficits

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  • Menguy, Séverine
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    Abstract

    Up until now, European fiscal discipline has been essentially assessed on the basis of the deficit rather than on the debt situations of EU countries. However, the sustainability of the public debt depends on the discrepancy between the interest rate and the growth rate of any given country. As these future economic variables are difficult to anticipate, however, the present paper proposes a more applicable rule for the deficits. Unlike what is stated in the Stability and Growth Pact, the budgetary deficits in the European Union may therefore be kept at higher levels as a country maintains a high inflation or real growth rate, and a low level of public indebtedness.

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    File URL: http://www.sciencedirect.com/science/article/B6V82-4RSYC4M-1/2/1c38ea7b82f78cbf7e7bd1581de30ac9
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Policy Modeling.

    Volume (Year): 30 (2008)
    Issue (Month): 6 ()
    Pages: 1093-1105

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    Handle: RePEc:eee:jpolmo:v:30:y:2008:i:6:p:1093-1105

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    Web page: http://www.elsevier.com/locate/inca/505735

    Related research

    Keywords: Budgetary deficit Public debt Growth rate European Union Stability and Growth Pact;

    References

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    1. Bruck, Tilman & Zwiener, Rudolf, 2006. "Fiscal policy rules for stabilisation and growth: A simulation analysis of deficit and expenditure targets in a monetary union," Journal of Policy Modeling, Elsevier, vol. 28(4), pages 357-369, May.
    2. Buti, M. & Eijffinger, S.C.W. & Franco, D., 2003. "Revisiting the stability and growth pact: Grand design or internal adjustment?," Open Access publications from Tilburg University urn:nbn:nl:ui:12-152958, Tilburg University.
    3. Francesco Saraceno & Paola Monperrus-Veroni, 2004. "A Simple Proposal for a 'Debt-Sensitive Stability Pact'," Macroeconomics 0406001, EconWPA.
    4. Eichengreen, Barry, 2005. "Europe, the euro and the ECB: Monetary success, fiscal failure," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 427-439, June.
    5. Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
    6. Gábor Orbán & György Szapáry, 2004. "The Stability and Growth Pact from the Perspective of the New Member States," MNB Working Papers 2004/4, Magyar Nemzeti Bank (the central bank of Hungary).
    7. Matthew B. Canzoneri & Robert E. Cumby & Behzad T. Diba, 2002. "Should the European Central Bank and the Federal Reserve be concerned about fiscal policy?," Proceedings, Federal Reserve Bank of Kansas City, pages 333-389.
    8. Pierre-Yves Hénin, 1997. "Soutenabilité des déficits et ajustements budgétaires," Revue économique, Presses de Sciences-Po, vol. 0(3), pages 371-395.
    9. Wyplosz, Charles, 2002. "Fiscal Policy: Institutions versus Rules," CEPR Discussion Papers 3238, C.E.P.R. Discussion Papers.
    10. Pierre-Yves Hénin, 1997. "Soutenabilité des déficits et ajustements budgétaires," Revue Économique, Programme National Persée, vol. 48(3), pages 371-395.
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    Cited by:
    1. Garcia, Carlos J. & Restrepo, Jorge E. & Tanner, Evan, 2011. "Fiscal rules in a volatile world: A welfare-based approach," Journal of Policy Modeling, Elsevier, vol. 33(4), pages 649-676, July.
    2. Schuknecht, Ludger & Hauptmeier, Sebastian & Sanchez Fuéntes, Jésus, 2011. "Towards Expenditure Rules and Fiscal Sanity in the Euro Area," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48693, Verein für Socialpolitik / German Economic Association.

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