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A Simple and Flexible Alternative to the Stability and Growth Pact Deficit Ceilings. Is it at hand?

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  • Anton Muscatelli
  • Piergiovanna Natale
  • Patrizio Tirelli

Abstract

There have been widespread criticisms of EMU fiscal institutions. We consider a simple alternative to the deficit ceilings envisaged in the Stability and Growth Pact. We advocate the adoption of deficit targets. National governments should retain discretion in setting deviations from targets, but these deviations should then be reversed following a predetermined rule. This ensures fiscal discipline and leaves room for stabilisation policies. For the rule to be credible, only small changes are required to current EMU institutions. Our scheme performs well in comparison with existing reform proposals and is consistent with the golden rule of deficit financing.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1006.

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Date of creation: 2003
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Handle: RePEc:ces:ceswps:_1006

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  1. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 25(4), pages 619-30, October.
  2. Bovenberg, A.L. & Beetsma, R.M.W.J., 1997. "Central Bank independence and public debt policy," Open Access publications from Tilburg University, Tilburg University urn:nbn:nl:ui:12-74443, Tilburg University.
  3. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  4. Julio J. Rotemberg & Michael Woodford, 1999. "Interest Rate Rules in an Estimated Sticky Price Model," NBER Chapters, National Bureau of Economic Research, Inc, in: Monetary Policy Rules, pages 57-126 National Bureau of Economic Research, Inc.
  5. von Hagen, J├╝rgen & Mundschenk, Susanne, 2001. "The functioning of economic policy coordination," ZEI Working Papers, ZEI - Center for European Integration Studies, University of Bonn B 08-2001, ZEI - Center for European Integration Studies, University of Bonn.
  6. Jean Pisani-Ferry, 2005. "Fiscal policy in EMU: towards a sustainability and growth pact," Working Papers, Bruegel 52, Bruegel.
  7. 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, Tilburg University urn:nbn:nl:ui:12-176184, Tilburg University.
  8. Jensen, Henrik, 1994. "Loss of monetary discretion in a simple dynamic policy game," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 18(3-4), pages 763-779.
  9. Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 10(4), pages 427-442, December.
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Cited by:
  1. Thierry Warin, 2005. "The Hidden Structural Features of the Fiscal Rule: A European Saga," International Advances in Economic Research, Springer, Springer, vol. 11(1), pages 29-38, March.
  2. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2008. "Fiscal-monetary policy coordination and debt management: a two-stage analysis," Empirica, Springer, Springer, vol. 35(4), pages 433-448, September.
  3. Giovanni Di Bartolomeo & Debora Di Gioacchino, 2005. "Fiscal-Monetary Policy Coordination And Debt Management: A Two Stage Dynamic Analysis," Macroeconomics, EconWPA 0504024, EconWPA.
  4. 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.
  5. Kilian Bizer & Zulia Gubaydullina & Hazim Rahahleh & Werner Sesselmeier, 2007. "FTPL-Perspective on Tradable Deficit Permits in the EMU," Atlantic Economic Journal, International Atlantic Economic Society, International Atlantic Economic Society, vol. 35(3), pages 259-267, September.

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