Muscatelli, Vito & Piergiovanna, Natale, (2012), ‘A simple and flexible alternative to Stability and Growth Pact deficit ceilings. Is it at hand?’, European Journal of Political Economy,Volume 28, Issue 1, p.p. 14–26.
We model a monetary union where fiscal discretion generates excessive debt accumulation in steady state and inefficiently delayed debt adjustment following shocks. By setting a debt target and raising the political cost of deviating from the optimal pace of debt reversal¸ institutional design induces fiscal policymakers to implement unbiased responses to shocks. This is partly achieved by increasing the transparency of the decision-making process. We therefore call for more focused supervision tasks for the European Commission and for parliamentary discussion whenever a disagreement arises between the Commission and a national government.