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

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

Blog Article

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 Stockmans breastplate 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 Cereal 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.