FTPL-Perspective on Tradable Deficit Permits in the EMU

Kilian Bizer (), Zulia Gubaydullina (), Hazim Rahahleh () and Werner Sesselmeier ()

Atlantic Economic Journal, 2007, vol. 35, issue 3, 259-267

Abstract: The Growth and Stability Pact restricts member states in their fiscal policy but also causes inflexibility in the pursuit of wide-ranging economic and social reforms. Tradable deficit permits allow more flexibility for individual member states and provide a stick for those who exceed the deficit limit but also a carrot to those who stay below it. But does the trade in deficit permits affect the monetary objectives of the European Central Bank (ECB)? We argue that from a perspective of fiscal theory of the price level, trade in deficit permits can lead to higher inflation depending on the growth rate and the debt/GDP ratio of the member states. Copyright International Atlantic Economic Society 2007

Keywords: EU; Fiscal policy; Fiscal theory of the price level; Growth and stability pact; Monetary policy; Tradable deficit permits; E50; E60; H30; H60 (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/s11293-007-9075-9

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