A simple and flexible alternative to the Stability and Growth Pact deficit ceilings. Is it at hand?
We use a simple theoretical model of a monetary union where myopic discretionary fiscal policies generate excessive debt accumulation in steady state and inefficiently delayed debt adjustment following a shock. We advocate the adoption of a flexible debt targeting approach. By setting a long-term debt target and by raising the political cost associated to deviations from the optimal pace of debt reversal following a shock¸ institutional design induces the fiscal policymaker to implement unbiased discretionary responses to shocks. Since the power to discipline fiscal policymakers rests in the hands of national voters, this outcome can be achieved by increasing the transparency of the decision-making process, where national voters understand the long-term consequences of fiscal policies. In practice, we call for clearer and more focused supervision tasks for the European Commission and for a more active role of national Parliaments whenever a disagreement arises between the Commission and a national government.
|Date of creation:||Jul 2010|
|Date of revision:||Jul 2010|
|Contact details of provider:|| Postal: Piazza Ateneo Nuovo, 1 Milano 20126|
Phone: +39 02 6448 3089
Fax: +39 02 6448 3085
Web page: http://dems.unimib.it
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Julio J. Rotemberg & Michael Woodford, 1999.
"Interest Rate Rules in an Estimated Sticky Price Model,"
in: Monetary Policy Rules, pages 57-126
National Bureau of Economic Research, Inc.
- 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.
- 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.
- Jean Pisani-Ferry, 2005. "Fiscal policy in EMU: towards a sustainability and growth pact," Working Papers 52, Bruegel.
- Marco Buti & Sylvester Eijffinger & Daniele Franco, 2003.
"Revisiting the Stability and Growth Pact: grand design or internal adjustment?,"
European Economy - Economic Papers 2008 - 2015
180, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Buti, Marco & Eijffinger, Sylvester C W & Franco, Daniele, 2003. "Revisiting the Stability and Growth Pact: Grand Design or Internal Adjustment?," CEPR Discussion Papers 3692, C.E.P.R. Discussion Papers.
- Buti, Marco & Eijffinger, Sylvester C.W. & Franco, Daniele, 2003. "Revisiting the stability and growth pact: grand design or internal adjustment?," Seminarios y Conferencias 6567, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
- Jürgen von Hagen & Susanne Mundschenk, 2002.
"The Functioning of Economic Policy Coordination,"
in: EMU and Economic Policy in Europe, chapter 7
Edward Elgar Publishing.
- 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.
- 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.
- 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.
- 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.
- Buti, Marco, 2003. "Revisiting the stability and growth pact: grand design or internal adjustment?," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34908, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
When requesting a correction, please mention this item's handle: RePEc:mib:wpaper:195. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matteo Pelagatti)
If references are entirely missing, you can add them using this form.