莫卡特斯中心-财政主导：我们应该有多担心？（英）-2023.3+-16页_188kb

Summary of Fiscal Dominance

Fiscal dominance is defined as a policy regime where fiscal policy drives inflation by refusing to raise budget surpluses in response to rising debt, allowing interest payments to exacerbate deficits and fuel inflation. It contrasts with monetary dominance, where monetary policy controls inflation and fiscal policy stabilizes debt.

The brief outlines three main types of fiscal dominance:

• Unwitting dominance arises from fiscal rules, like those in the EU's fiscal compact, that conflict with monetary policy goals, such as the ECB's inability to raise inflation despite fiscal tightening.
• Insidious dominance occurs as economies approach their fiscal limits due to aging populations, leading to stealthy inflation and uncertainty, as seen in potential outcomes from COVID-like emergencies.
• Political dominance involves politically driven actions, such as debt ceiling negotiations, which can undermine the safety of government debt and force central banks to choose between inflation control and financial stability.

Fiscal dominance is a recurring threat because it forces central banks to trade off their mandates, cannot be avoided by operational independence, and highlights economic and political instability. Examples include the UK's 2022 budget crash, the US COVID relief spending, and European central bank interventions. Addressing this issue requires redesigning fiscal rules into implementable and enforceable frameworks that account for political incentives to prevent erosion of economic stability and the role of institutions like the Federal Reserve.