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.
Muscatelli, V., Natale, P., Tirelli, P. (2012). A simple and flexible alternative to the Stability and Growth Pact deficit ceilings. Is it at hand?. EUROPEAN JOURNAL OF POLITICAL ECONOMY, 28(1), 14-26 [10.1016/j.ejpoleco.2011.07.004].
A simple and flexible alternative to the Stability and Growth Pact deficit ceilings. Is it at hand?
NATALE, PIERGIOVANNA;TIRELLI, PATRIZIO
2012
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.