Fiscal Implications of the ECB’s Bond Buying Program

Paul De Grauwe and Yuemei Ji ()

Open Economies Review, 2013, vol. 24, issue 5, 843-852

Abstract: The perception that the government bond buying program (OMT) announced by the ECB may lead to future tax burdens on countries, in particular on Germany, is based on an erroneous application of solvency principles that apply to private agents, but not to central banks. We argue that the creditor nations’ taxpayers, in particular the German taxpayers, will receive tax revenue from the implementation of the OMT. We also measure the size of the bond-buying program that is compatible with price stability. It turns out that this estimate critically depends on whether the Eurozone stays in a liquidity trap situation or not. Today, as the Eurozone is still in a liquidity trap there is no limit to the amount of government bonds the ECB can buy without triggering inflation. Copyright Springer Science+Business Media New York 2013

Keywords: ECB; OMT program; Fiscal implications; Inflation risk; Lender of last resort; E4; E5; F3 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1007/s11079-013-9284-6

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