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

  • Anton Muscatelli
  • Piergiovanna Natale
  • Patrizio Tirelli

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. Julio Rotemberg & Michael Woodford, 1997. "An Optimization-Based Econometric Framework for the Evaluation of Monetary Policy," NBER Chapters, in: NBER Macroeconomics Annual 1997, Volume 12, pages 297-361 National Bureau of Economic Research, Inc.
  2. Jürgen von Hagen & Susanne Mundschenk, 2002. "The Functioning of Economic Policy Coordination," Chapters, in: EMU and Economic Policy in Europe, chapter 7 Edward Elgar.
  3. repec:ner:tilbur:urn:nbn:nl:ui:12-74443 is not listed on IDEAS
  4. Julio J. Rotemberg & Michael Woodford, 1998. "Interest-Rate Rules in an Estimated Sticky Price Model," NBER Working Papers 6618, National Bureau of Economic Research, Inc.
  5. Jean Pisani-Ferry, 2005. "Fiscal policy in EMU: towards a sustainability and growth pact," Working Papers 52, Bruegel.
  6. repec:ner:tilbur:urn:nbn:nl:ui:12-176184 is not listed on IDEAS
  7. Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003. "Revisiting the Stability and Growth Pact: grand design or internal adjustment?," European Economy - Economic Papers 180, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  8. Bovenberg, A.L. & Beetsma, R.M.W.J., 1997. "Central Bank independence and public debt policy," Other publications TiSEM d1fc1375-507c-445b-9b38-d, Tilburg University, School of Economics and Management.
  9. Jensen, Henrik, 1994. "Loss of monetary discretion in a simple dynamic policy game," Journal of Economic Dynamics and Control, Elsevier, vol. 18(3-4), pages 763-779.
  10. Alesina, Alberto & Tabellini, Guido, 1987. "Rules and Discretion with Noncoordinated Monetary and Fiscal Policies," Economic Inquiry, Western Economic Association International, vol. 25(4), pages 619-30, October.
  11. Tabellini, Guido, 1986. "Money, debt and deficits in a dynamic game," Journal of Economic Dynamics and Control, Elsevier, vol. 10(4), pages 427-442, December.
  12. Beetsma, Roel M. W. J. & Bovenberg, A. Lans, 1997. "Central bank independence and public debt policy," Journal of Economic Dynamics and Control, Elsevier, vol. 21(4-5), pages 873-894, May.
  13. repec:ner:tilbur:urn:nbn:nl:ui:12-152958 is not listed on IDEAS
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