Choosing the European fiscal rule

Ginters Buss, Patrick Grüning and Oļegs Tkačevs
Additional contact information
Patrick Grüning: Research Division, Monetary Policy Department, Latvijas Banka, Riga, Latvia
Oļegs Tkačevs: Research Division, Monetary Policy Department, Latvijas Banka, Riga, Latvia

Baltic Journal of Economics, 2024, vol. 24, issue 1, 116-144

Abstract: In 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.

Keywords: Fiscal policy; DSGE; small open economy; fiscal-monetary policy interaction (search for similar items in EconPapers)
JEL-codes: E27 E32 E62 E63 F41 H63 (search for similar items in EconPapers)
Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2024.2340402 (application/pdf)

Related works:
Working Paper: Choosing the European Fiscal Rule (2022)
Working Paper: Choosing the European Fiscal Rule (2021)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bic:journl:v:24:y:2024:i:1:p:116-144

Access Statistics for this article

More articles in Baltic Journal of Economics from Baltic International Centre for Economic Policy Studies Contact information at EDIRC.
Bibliographic data for series maintained by Anna Zasova ().