Abstract

http://ssrn.com/abstract=275033
 
 

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Structural Distortions and Decentralized Fiscal Policies in EMU


Roel M. W. J. Beetsma


University of Amsterdam - Research Institute in Economics & Econometrics (RESAM); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA); Netspar

A. Lans Bovenberg


Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

June 2001

CEPR Discussion Paper No. 2851

Abstract:     
The combination of discretionary monetary policy, labour-market distortions and nominal wage rigidity yields an inflation bias as monetary policy tries to exploit nominal wage contracts to address labour-market distortions. Although an inflation target eliminates this inflation bias, it creates a conflict between monetary policy and discretionary fiscal policy if fiscal policy is set at a higher frequency than nominal wages are. To avoid the associated excessive accumulation of public debt, ceilings on public debt are called for. If countries differ substantially in terms of structural distortions or economic shocks, country-specific debt targets must complement uniform debt ceilings in order to prevent decentralized fiscal authorities from employing debt policy strategically.

Number of Pages in PDF File: 66

Keywords: Discretionary monetary policy, wage rigidity, decentralized fiscal policy, monetary union, inflation targets, debt targets

JEL Classification: E52, E58, E61, E62

working papers series


Date posted: June 26, 2001  

Suggested Citation

Beetsma, Roel M. W. J. and Bovenberg, A. Lans, Structural Distortions and Decentralized Fiscal Policies in EMU (June 2001). CEPR Discussion Paper No. 2851. Available at SSRN: http://ssrn.com/abstract=275033

Contact Information

Roel M. W. J. Beetsma (Contact Author)
University of Amsterdam - Research Institute in Economics & Econometrics (RESAM) ( email )
Roetersstraat 11
Amsterdam
Netherlands
+31 20 525 5280 (Phone)
+31 20 525 4254 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )
Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands
Netspar ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
A. Lans Bovenberg
Tilburg University - Center for Economic Research (CentER) ( email )
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2912 (Phone)
+31 13 466 3066 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
CESifo (Center for Economic Studies and Ifo Institute for Economic Research)
Poschinger Str. 5
Munich, DE-81679
Germany
HOME PAGE: http://www.CESifo.de
Feedback to SSRN


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Citations:  4
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