| Author (Corporate) | European Parliament: European Parliamentary Research Service |
|---|---|
| Series Title | Briefing |
| Series Details | April 2016 |
| Publication Date | April 2016 |
| Content Type | Journal | Series | Blog |
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'Helicopter money', or 'helicopter drops' of money, generally refers to a non-standard monetary policy tool used in deflationary conditions. It can be understood as a permanent increase in the nominal stock of fiat base money at lowest nominal interest rates. Some experts call for its use in the euro area, arguing that the interest-free distribution of additional money to the private sector would increase consumption and investments, and help jump-start the EU economy. In practical terms, there are different proposals for distributing helicopter money, which may entail fiscal policy measures, such as government bonds, or printed-money-financed tax relief for private households. Some empirical studies show that tax rebates have had positive macroeconomic effects in certain countries. Helicopter money is also criticised, however. Some experts argue that it would have a negative impact on public sector (or central bank) balance sheets. Others say it may prompt indebted euro-area countries to pull back from unpopular fiscal and structural reforms. Helicopter money, it is argued, could also undermine the stability of the euro, by triggering 'runaway' inflation or reducing the incentive to work. There are also questions about the legality of helicopter money. Some experts believe it is permissible under EU law, citing Article 20 (Other instruments of monetary control) of the Protocol on the European Central Bank's statute. The Bank has a rather reluctant stance, arguing that the very idea runs counter to Article 123(1) of the Treaty on the Functioning of the European Union, which prohibits the direct financing of public expenditure. Author: Cemal Karakas |
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| Source Link | Link to Main Source http://www.europarl.europa.eu/RegData/etudes/BRIE/2016/581970/EPRS_BRI(2016)581970_EN.pdf |
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| Subject Categories | Economic and Financial Affairs |
| Countries / Regions | Europe |
