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Fiscal Limits in Advanced Economies

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  • Eric M. Leeper
  • Todd B. Walker

Abstract

Aging populations in advanced economies are placing ever-increasing demands on government spending in the form of old-age benefits. Economies that have promised substantially more benefits than they have made provision to finance are heading into a prolonged era of fiscal stress. Unresolved fiscal stress raises the possibility that the economies will hit their fiscal limits where taxes and spending no longer adjust to stabilize debt. In such economies, monetary policy may lose its ability to control inflation and influence the economy in the usual ways. The paper discusses models of fiscal limits and their implications and lays out a research agenda to integrate political economy and empirical considerations with general equilibrium models of monetary and fiscal interactions.

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Bibliographic Info

Article provided by The Economic Society of Australia in its journal Economic Papers.

Volume (Year): 30 (2011)
Issue (Month): 1 (03)
Pages: 33-47

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Handle: RePEc:bla:econpa:v:30:y:2011:i:1:p:33-47

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Citations

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Cited by:
  1. Seok Gil Park, 2012. "Quantifying Impact of Aging Population on Fiscal Space," IMF Working Papers 12/164, International Monetary Fund.
  2. Hideki Konishi & Kozo Ueda, 2013. "Aging and Deflation from a Fiscal Perspective," IMES Discussion Paper Series 13-E-13, Institute for Monetary and Economic Studies, Bank of Japan.
  3. Gliksberg, Baruch, 2013. "Monetary policy and fiscal limits with no-default," European Economic Review, Elsevier, vol. 64(C), pages 285-304.
  4. Sánchez, Marcelo, 2012. "Restoring the conservative central banker proposition under monetary-fiscal interaction," Economics Letters, Elsevier, vol. 117(2), pages 448-451.
  5. Marina Azzimonti, 2013. "The political economy of balanced budget amendments," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 11-20.
  6. Richard W. Evans & Laurence J. Kotlikoff & Kerk L. Phillips, 2012. "Game Over: Simulating Unsustainable Fiscal Policy," NBER Chapters, in: Fiscal Policy after the Financial Crisis, pages 177-202 National Bureau of Economic Research, Inc.
  7. Lees, Kirdan, 2013. "Fighting fit? Assessing New Zealand’s fiscal sustainability," NZIER Working Paper 2013/5, New Zealand Institute of Economic Research.
  8. Eric M. Leeper & Todd B. Walker, 2012. "Perceptions and Misperceptions of Fiscal Inflation," NBER Working Papers 17903, National Bureau of Economic Research, Inc.
  9. Libich, Jan & Nguyen, Dat & Stehlik, Petr, 2014. "Monetary Exit and Fiscal Spillovers," MPRA Paper 57266, University Library of Munich, Germany.

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