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FTPL-Perspective on Tradable Deficit Permits in the EMU

  • Kilian Bizer


  • Zulia Gubaydullina


  • Hazim Rahahleh


  • Werner Sesselmeier


Registered author(s):

    The Growth and Stability Pact restricts member states in their fiscal policy but also causes inflexibility in the pursuit of wide-ranging economic and social reforms. Tradable deficit permits allow more flexibility for individual member states and provide a stick for those who exceed the deficit limit but also a carrot to those who stay below it. But does the trade in deficit permits affect the monetary objectives of the European Central Bank (ECB)? We argue that from a perspective of fiscal theory of the price level, trade in deficit permits can lead to higher inflation depending on the growth rate and the debt/GDP ratio of the member states. Copyright International Atlantic Economic Society 2007

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    Article provided by International Atlantic Economic Society in its journal Atlantic Economic Journal.

    Volume (Year): 35 (2007)
    Issue (Month): 3 (September)
    Pages: 259-267

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    Handle: RePEc:kap:atlecj:v:35:y:2007:i:3:p:259-267
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    3. Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
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    6. Woodford, Michael, 1995. "Price-level determinacy without control of a monetary aggregate," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 43(1), pages 1-46, December.
    7. Bizer, Kilian & Sesselmeier, Werner, 2004. "Koordinierte Makropolitik in der Europäischen Union?," Darmstadt Discussion Papers in Economics 21326, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL).
    8. Jérôme Creel & Henri Sterdyniak, 2002. "The fiscal theory of the price level and sluggish inflation: how important shall the wealth effect be?," Working Papers hal-00972779, HAL.
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    11. António Afonso, 2002. "Disturbing the fiscal theory of the price level: Can it fit the eu-15?," 10th International Conference on Panel Data, Berlin, July 5-6, 2002 B4-3, International Conferences on Panel Data.
    12. CASTRO, Rui & De RESENDE, Carlos & RUGE-MURCIA, Francisco, 2003. "The Backing of Government Debt and the Price Level," Cahiers de recherche 16-2003, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    13. Bizer, Kilian & Sesselmeier, Werner, 2004. "Koordinierte Makropolitik in der Europäischen Union?," Darmstadt Discussion Papers in Economics 137, Darmstadt University of Technology, Department of Law and Economics.
    14. Dupor, Bill, 2000. "Exchange rates and the fiscal theory of the price level," Journal of Monetary Economics, Elsevier, vol. 45(3), pages 613-630, June.
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