IDEAS home Printed from https://ideas.repec.org/a/taf/oaefxx/doi10.1080-23322039.2014.932257.html
   My bibliography  Save this article

Which is the optimal fiscal rule in a monetary union? Targeting the structural, the global budgetary deficit, or the public debt?

Author

Listed:
  • S. Menguy

Abstract

The aim of our paper is to contribute to the debate on optimal fiscal rules in a monetary union: in terms of global budgetary deficit, of structural budgetary deficit, or of public debt. Indeed, these rules seem to be mixed in the framework of the European Economic and Monetary Union, with the new Fiscal Compact. With the help of a simple macroeconomic model, we show that a goal in terms of public debt is the most appropriate in order to decrease the indebtedness levels, but that it could increase the recessionary risks for the most indebted European countries. Goals in terms of global budgetary deficit or public debt are the most appropriate to limit the budgetary activism and to stabilize fiscal variables in case of demand or supply shocks. However, a goal in terms of structural budgetary deficit is the most appropriate in order to stabilize economic activity levels in case of asymmetric demand or supply shocks.

Suggested Citation

  • S. Menguy, 2014. "Which is the optimal fiscal rule in a monetary union? Targeting the structural, the global budgetary deficit, or the public debt?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-21, December.
    • Handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.932257
    DOI: 10.1080/23322039.2014.932257
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/23322039.2014.932257
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/23322039.2014.932257?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lukas Vogel & Werner Roeger & Bernhard Herz, 2006. "Optimal Simple Rules for Fiscal Policy in a Monetary Union," Working Papers 021, Bavarian Graduate Program in Economics (BGPE).
    2. Creel, Jérôme & Hubert, Paul & Saraceno, Francesco, 2013. "An assessment of the Stability and Growth Pact reform in a small-scale macro-framework," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1567-1580.
    3. Jérôme Creel & Francesco Saraceno, 2010. "European fiscal rules after the crisis," Journal of Innovation Economics, De Boeck Université, vol. 0(2), pages 95-122.
    4. Daniel Kienzler & Kai Daniel Schmid, 2010. "Interest Rate Policy and Supply-side Adjustment Dynamics," Diskussionspapiere aus dem Institut für Volkswirtschaftslehre der Universität Hohenheim 324/2010, Department of Economics, University of Hohenheim, Germany.
    5. Cristina Checherita-Westphal & Andrew Hughes Hallett & Philipp Rother, 2014. "Fiscal sustainability using growth-maximizing debt targets," Applied Economics, Taylor & Francis Journals, vol. 46(6), pages 638-647, February.
    6. Blanchard, Olivier & Giavazzi, Francesco, 2004. "Improving the SGP Through a Proper Accounting of Public Investment," CEPR Discussion Papers 4220, C.E.P.R. Discussion Papers.
    7. Jakob De Haan & Helge Berger & David‐Jan Jansen, 2004. "Why has the Stability and Growth Pact Failed?," International Finance, Wiley Blackwell, vol. 7(2), pages 235-260, July.
    8. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    9. Andrew Hughes Hallett & Svend Jensen, 2011. "Stable and enforceable: a new fiscal framework for the Euro area," International Economics and Economic Policy, Springer, vol. 8(3), pages 225-245, September.
    10. Roberto Tamborini, 2011. "The new rules of the Stability and Growth Pact. Threats from heterogeneity and interdependence," Department of Economics Working Papers 1104, Department of Economics, University of Trento, Italia.
    11. Lenard Lieb, 2012. "Taking Real Wage Rigidities Seriously: Implications for Optimal Policy Design in a Currency Union," International Economic Journal, Taylor & Francis Journals, vol. 26(1), pages 37-68, September.
    12. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    13. Marco Buti & Daniele Franco, 2005. "Fiscal Policy in Economic and Monetary Union," Books, Edward Elgar Publishing, number 3590.
    14. Marco Buti & Gabriele Giudice, 2002. "Maastricht’s Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nicolas Afflatet & Stephanos Papadamou, 2016. "Public debt and borrowing: Are governments disciplined by financial markets?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1225346-122, December.
    2. Paulo Vieira & Celsa Machado & Ana Paula Ribeiro, 2016. "Optimal Fiscal Simple Rules for Small and Large Countries of a Monetary Union," EcoMod2016 9685, EcoMod.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hal:spmain:info:hdl:2441/eul7jlnf19iq8tdp0vlfv63n5 is not listed on IDEAS
    2. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," SciencePo Working papers Main hal-03457591, HAL.
    3. repec:spo:wpmain:info:hdl:2441/eul7jlnf19iq8tdp0vlfv63n5 is not listed on IDEAS
    4. Francesco Saraceno, 2017. "Rethinking fiscal policy : lessons from the european monetary union," Working Papers hal-03457591, HAL.
    5. Leopold Diebalek & Doris Prammer, 2006. "Reform of the Stability and Growth Pact," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 78-109.
    6. Julia del Amo Valor & Marcos Martín Mateos & Diego Martínez López & Javier J. Pérez, 2023. "Is the European economic governance framework too “complex”? A critical discussion," Working Papers 2023-06, FEDEA.
    7. repec:spo:wpmain:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    8. Jerome Creel & Paul Hubert & Francesco Saraceno, 2012. "An assessment of Stability and Growth Pact Reform Proposals in a Small-Scale Macro Framework," Documents de Travail de l'OFCE 2012-04, Observatoire Francais des Conjonctures Economiques (OFCE).
    9. Catherine Mathieu & Henri Sterdyniak, 2003. "Reforming the Stability and Growth Pact: Breaking the Ice," SciencePo Working papers Main hal-00972861, HAL.
    10. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, February.
    11. repec:spo:wpmain:info:hdl:2441/2842 is not listed on IDEAS
    12. repec:spo:wpecon:info:hdl:2441/2842 is not listed on IDEAS
    13. Bom, Pedro R.D., 2019. "Fiscal rules and the intergenerational welfare effects of public investment," Economic Modelling, Elsevier, vol. 81(C), pages 455-470.
    14. repec:hal:wpspec:info:hdl:2441/2842 is not listed on IDEAS
    15. Francesco Saraceno & Paola Veroni, 2005. "Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance," Working Papers hal-03462247, HAL.
    16. José Roberto Rodrigues Afonso & Erika Amorim Araújo & Geraldo Biasoto Júnior, 2005. "Fiscal Space and Public Sector Investments in Infrastructure: A Brazilian Case-Study," Discussion Papers 1141, Instituto de Pesquisa Econômica Aplicada - IPEA.
    17. Leopold Diebalek & Walpurga Köhler-Töglhofer & Doris Prammer, 2006. "Reform of the Stability and Growth Pact," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue Q1/06, pages 78-109.
    18. Catherine Mathieu & Henri Sterdyniak, 2003. "Réformer le pacte de stabilité : l'état du débat," Revue de l'OFCE, Presses de Sciences-Po, vol. 84(1), pages 145-179.
    19. Marco Buti, 2006. "Will the new stability and growth pact succeed? An economic and political perspective," European Economy - Economic Papers 2008 - 2015 241, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    20. repec:hal:wpspec:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    21. Paola Monperrus-Veroni & Francesco Saraceno, 2005. "Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance?," Documents de Travail de l'OFCE 2005-01, Observatoire Francais des Conjonctures Economiques (OFCE).
    22. Kukk Merike & Staehr Karsten, 2015. "Enhanced Fiscal Governance in the European Union: The Fiscal Compact," TalTech Journal of European Studies, Sciendo, vol. 5(1), pages 73-92, February.
    23. repec:hal:spmain:info:hdl:2441/2842 is not listed on IDEAS
    24. Schalck, Christophe, 2006. "Règles Budgétaires et Gestion du Policy-Mix dans l'UEM Budgetary Rules and Management of the Policy-Mix in the UME," MPRA Paper 1434, University Library of Munich, Germany, revised Oct 2006.
    25. José Roberto Rodrigues Afonso & Erika Amorim Araújo & Geraldo Biasoto Júnior, 2015. "Fiscal Space and Public Sector Investments in Infrastructure: a Brazilian Case-Study," Discussion Papers 0161, Instituto de Pesquisa Econômica Aplicada - IPEA.
    26. European Fiscal Board (EFB), 2019. "Assessment of EU fiscal rules with a focus on the six and two-pack legislation," Reports 2019, European Fiscal Board.
    27. repec:spo:wpecon:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    28. repec:hal:spmain:info:hdl:2441/eu4vqp9ompqllr09j0h0g8tgo is not listed on IDEAS
    29. Elena Flores & Gabriele Giudice & Alessandro Turrini, 2005. "The framework for fiscal policy in EMU: What future after five years of experience?," European Economy - Economic Papers 2008 - 2015 223, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    30. Francesco Saraceno & Paola Veroni, 2005. "Reform of the Stability and Growth Pact: Reducing or Increasing the Nuisance," SciencePo Working papers Main hal-03462247, HAL.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:oaefxx:doi:10.1080/23322039.2014.932257. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/OAEF20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.