Open AccessIs There an Alternative to the Fiscal Compact for Conducting Fiscal Policy in the Euro Area?
Author(s) -
Andrew Hughes Hallet,
Svend E. Hougaard Jensen
Publication year - 2013
Language(s) - English
Resource type - Journals
ISSN - 2446-0893
DOI - 10.7146/politik.v16i1.27535
Subject(s) - debt , enforcement , fiscal policy , economics , set (abstract data type) , term (time) , monetary policy , demographics , monetary economics , macroeconomics , public economics , computer science , political science , physics , demography , quantum mechanics , sociology , law , programming language
This paper o ers a critical assessment of the scal set-up in the Euro Area and considers a new framework for achieving scal discipline. e key idea is an inter-temporal assignment where national scal policies focus on long-term objectives and a common monetary policy on short-term objectives. e result is a self-stabilising set-up where the enforcement problem has largely been resolved. For practical implementation purposes, scal policy is stated in terms of a target for the public debt-to-GDP ratio. We argue that the debt target should be set in a forward-looking fashion to account for implicit liabilities, such as the discounted budgetary impact of changing demographics in addition to conventional debt measures.