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Budget rules with a public debt reduction target

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  • Alessandro Petretto

Abstract

After the Stability and Growth Pact suspension to face the Covid-19 emergency and subsequent financial crisis, a novel fiscal discipline must be designed for the Euro Area. In this short paper, we formally analyze and compare three budget rules and their efficacy in pursuing a reasonable public debt reduction target, explicitly envisaged by them. The rules we refer to are: (a) the structural adjustment toward a budget medium term objective, required by Fiscal Compact discipline; (b) the expenditure rule proposed by European Fiscal Board and (c) the Musgrave Golden rule. By a simple simulation exercise we argue that the rule proposed by EFB seems to be, for a country with a low rate of growth and a high level of public debt, preferable to the other two.

Suggested Citation

  • Alessandro Petretto, 2021. "Budget rules with a public debt reduction target," ECONOMIA PUBBLICA, FrancoAngeli Editore, vol. 2021(1), pages 7-24.
    • Handle: RePEc:fan:epepep:v:html10.3280/ep2021-001001
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    More about this item

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt

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