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Fiscal rules in a volatile world: A welfare-based approach

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  • Garcia, Carlos J.
  • Restrepo, Jorge E.
  • Tanner, Evan

Abstract

It is widely agreed that a fiscal rule should boost discipline and credibility. A rule should also reduce macroeconomic volatility and be easily understood. Toward such ends, a government may run structural surpluses. In so doing, the government accumulates a precautionary cushion of assets on behalf of agents who do not enjoy access to capital markets. As an additional criterion, that level of assets should be bounded. We provide an example of a structural surplus rule that satisfies all such criteria. In our general equilibrium simulations, we show that such a rule benefits credit-constrained consumers but may hurt others.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Policy Modeling.

Volume (Year): 33 (2011)
Issue (Month): 4 (July)
Pages: 649-676

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Handle: RePEc:eee:jpolmo:v:33:y:2011:i:4:p:649-676

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Web page: http://www.elsevier.com/locate/inca/505735

Related research

Keywords: Fiscal rule Volatility Structural surplus Consumer welfare Equilibrium model;

References

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Citations

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Cited by:
  1. Carlos J. García & Pablo González M. & Antonio Moncado S., 2013. "Macroeconomic Forecasting in Chile: a Structural Bayesian Approach," Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 16(1), pages 24-63, April.
  2. Carlos Garcia & Pablo Gonzalez & Antonio Moncado, 2010. "Proyecciones Macroeconómicas en Chile: Una Aproximación Bayesiana," ILADES-Georgetown University Working Papers inv262, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  3. Evan Tanner, 2013. "Fiscal Sustainability," IMF Working Papers 13/89, International Monetary Fund.
  4. Carlos Garcia, 2012. "Why Does Monetary Policy Respond to the Real Exchange Rate in Small Open Economies? A Bayesian Perspective," ILADES-Georgetown University Working Papers inv287, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
  5. Jair N. OJeda & Julián A. Parra Polanía & Carmiña O. Vargas, 2014. "Natural-Resource Booms, Fiscal Rules and Welfare in a Small Open Economy," Borradores de Economia 807, Banco de la Republica de Colombia.
  6. Maravalle, Alessandro & Claeys, Peter, 2012. "Boom–bust cycles and procyclical fiscal policy in a small open economy," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 735-754.

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