Choosing the European fiscal rule
ABSTRACTIn order to quantitatively assess the potential effects from the ongoing transformation of the fiscal framework of the European Union, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these f...
| Main Authors: | , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Taylor & Francis Group
2024-01-01
|
| Series: | Baltic Journal of Economics |
| Subjects: | |
| Online Access: | https://www.tandfonline.com/doi/10.1080/1406099X.2024.2340402 |
| _version_ | 1797201443193618432 |
|---|---|
| author | Ginters Bušs Patrick Grüning Oļegs Tkačevs |
| author_facet | Ginters Bušs Patrick Grüning Oļegs Tkačevs |
| author_sort | Ginters Bušs |
| collection | DOAJ |
| description | ABSTRACTIn order to quantitatively assess the potential effects from the ongoing transformation of the fiscal framework of the European Union, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by using a modified public expenditure definition in the expenditure growth rule, in particular the removal of debt service payments. The expenditure growth rule with a strong-enough debt anchor strikes the balance between the short-term macroeconomic stability and the medium-term public debt convergence. There is a welfare gain for households from having only an expenditure growth rule. |
| first_indexed | 2024-04-24T07:47:37Z |
| format | Article |
| id | doaj.art-340c8010b36e465abd89e12afe5626c8 |
| institution | Directory Open Access Journal |
| issn | 1406-099X 2334-4385 |
| language | English |
| last_indexed | 2024-04-24T07:47:37Z |
| publishDate | 2024-01-01 |
| publisher | Taylor & Francis Group |
| record_format | Article |
| series | Baltic Journal of Economics |
| spelling | doaj.art-340c8010b36e465abd89e12afe5626c82024-04-18T18:29:40ZengTaylor & Francis GroupBaltic Journal of Economics1406-099X2334-43852024-01-0124111614410.1080/1406099X.2024.2340402Choosing the European fiscal ruleGinters Bušs0Patrick Grüning1Oļegs Tkačevs2Research Division, Monetary Policy Department, Latvijas Banka, Riga, LatviaResearch Division, Monetary Policy Department, Latvijas Banka, Riga, LatviaResearch Division, Monetary Policy Department, Latvijas Banka, Riga, LatviaABSTRACTIn order to quantitatively assess the potential effects from the ongoing transformation of the fiscal framework of the European Union, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by using a modified public expenditure definition in the expenditure growth rule, in particular the removal of debt service payments. The expenditure growth rule with a strong-enough debt anchor strikes the balance between the short-term macroeconomic stability and the medium-term public debt convergence. There is a welfare gain for households from having only an expenditure growth rule.https://www.tandfonline.com/doi/10.1080/1406099X.2024.2340402Fiscal policyDSGEsmall open economyfiscal-monetary policy interactionE27E32 |
| spellingShingle | Ginters Bušs Patrick Grüning Oļegs Tkačevs Choosing the European fiscal rule Baltic Journal of Economics Fiscal policy DSGE small open economy fiscal-monetary policy interaction E27 E32 |
| title | Choosing the European fiscal rule |
| title_full | Choosing the European fiscal rule |
| title_fullStr | Choosing the European fiscal rule |
| title_full_unstemmed | Choosing the European fiscal rule |
| title_short | Choosing the European fiscal rule |
| title_sort | choosing the european fiscal rule |
| topic | Fiscal policy DSGE small open economy fiscal-monetary policy interaction E27 E32 |
| url | https://www.tandfonline.com/doi/10.1080/1406099X.2024.2340402 |
| work_keys_str_mv | AT gintersbuss choosingtheeuropeanfiscalrule AT patrickgruning choosingtheeuropeanfiscalrule AT olegstkacevs choosingtheeuropeanfiscalrule |