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A simple and flexible alternative to Stability and Growth Pact deficit ceilings. Is it at hand?

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  • Muscatelli, Vito A.
  • Natale, Piergiovanna
  • Tirelli, Patrizio

Abstract

We model a monetary union where fiscal discretion generates excessive debt accumulation in steady state and inefficiently delayed debt adjustment following shocks. By setting a debt target and raising the political cost of deviating from the optimal pace of debt reversal¸ institutional design induces fiscal policymakers to implement unbiased responses to shocks. This is partly achieved by increasing the transparency of the decision-making process. We therefore call for more focused supervision tasks for the European Commission and for parliamentary discussion whenever a disagreement arises between the Commission and a national government.

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Bibliographic Info

Article provided by Elsevier in its journal European Journal of Political Economy.

Volume (Year): 28 (2012)
Issue (Month): 1 ()
Pages: 14-26

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Handle: RePEc:eee:poleco:v:28:y:2012:i:1:p:14-26

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Web page: http://www.elsevier.com/locate/inca/505544

Related research

Keywords: Fiscal policy; Fiscal rules; Economic and monetary union; Stability and Growth Pact; Transparency;

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References

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Cited by:
  1. Matthias Bauer & Martin Zenker, 2012. "Market Discipline Under A Politicised Multilateral Fiscal Rule - Lessons from the Stability and Growth Pact Debate," Global Financial Markets Working Paper Series 2012-35, Friedrich-Schiller-University Jena.

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