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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Year of publication:	August 2003
Authors:	Muscatelli, V. Anton ; Natale, Piergiovanna ; Tirelli, Patrizio
Publisher:	Munich : CESifo, Center for Economic Studies & Ifo Institute
Subject:	Haushaltsdefizit \| Budget deficit \| Regelbindung versus Diskretion \| Rules versus discretion \| Eurozone \| Euro area \| Finanzpolitik \| Fiscal policy \| Soziale Wohlfahrtsfunktion \| Social welfare function \| Theorie \| Theory \| Europäischer Stabilitätsmechanismus \| European Stability Mechanism \| Stabilitätspakt \| Europäische Union \| Wirtschafts- und Währungsunion