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

Muscatelli, V.A., Natale, P. and Tirelli, P. (2012) A simple and flexible alternative to Stability and Growth Pact deficit ceilings. Is it at hand? European Journal of Political Economy, 28(1), pp. 14-26. (doi: 10.1016/j.ejpoleco.2011.07.004)

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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.

Item Type:Articles
Status:Published
Refereed:Yes
Glasgow Author(s) Enlighten ID:Muscatelli, Professor Anton
Authors: Muscatelli, V.A., Natale, P., and Tirelli, P.
Subjects:H Social Sciences > HB Economic Theory
H Social Sciences > HJ Public Finance
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:European Journal of Political Economy
Publisher:Elsevier B.V.
ISSN:0176-2680
ISSN (Online):1873-5703
Published Online:28 July 2011

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