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Fiscal Sustainability and Fiscal Soundness

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  • Haizhou Huang
  • Danyang Xie

Abstract

This paper tackles fiscal sustainability and fiscal soundness. In contrast to the existing literature, our analysis is in a general equilibrium framework. We obtain three results. First, we endogenize growth rate and interest rate, the two key rates for any study of fiscal sustainability; second, we illustrate that fiscal sustainability in general equilibrium should not be measured by a one-dimension indicator, e.g., debt-to-GDP ratio as in conventional studies, rather it is a line¡ªa fiscal sustainability frontier¡ªin two dimensions, namely, debt-to-GDP ratio and expenditure-to-GDP ratio; third, we obtain a novel and useful index of aggregate fiscal soundness.

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Bibliographic Info

Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 9 (2008)
Issue (Month): 2 (November)
Pages: 239-251

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Handle: RePEc:cuf:journl:y:2008:v:9:i:2:p:239-251

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Keywords: Fiscal sustainability; Sustainability frontier; Fiscal soundness;

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Cited by:
  1. Mthuli Ncube & Zuzana Brixiová, 2013. "Public Debt Sustainability in Africa: Building Resilience and Challenges Ahead," William Davidson Institute Working Papers Series wp1053, William Davidson Institute at the University of Michigan.

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