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FTPL-Perspective on Tradable Deficit Permits in the EMU

Author

Listed:
  • Kilian Bizer
  • Zulia Gubaydullina
  • Hazim Rahahleh
  • Werner Sesselmeier

Abstract

The Growth and Stability Pact restricts member states in their fiscal policy but also causes inflexibility in the pursuit of wide-ranging economic and social reforms. Tradable deficit permits allow more flexibility for individual member states and provide a stick for those who exceed the deficit limit but also a carrot to those who stay below it. But does the trade in deficit permits affect the monetary objectives of the European Central Bank (ECB)? We argue that from a perspective of fiscal theory of the price level, trade in deficit permits can lead to higher inflation depending on the growth rate and the debt/GDP ratio of the member states. Copyright International Atlantic Economic Society 2007

Suggested Citation

  • Kilian Bizer & Zulia Gubaydullina & Hazim Rahahleh & Werner Sesselmeier, 2007. "FTPL-Perspective on Tradable Deficit Permits in the EMU," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 35(3), pages 259-267, September.
    • Handle: RePEc:kap:atlecj:v:35:y:2007:i:3:p:259-267
    DOI: 10.1007/s11293-007-9075-9
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    More about this item

    Keywords

    EU; Fiscal policy; Fiscal theory of the price level; Growth and stability pact; Monetary policy; Tradable deficit permits; E50; E60; H30; H60;
    All these keywords.

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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