Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis
AbstractThis paper examines the consequences for the sustainability of fiscal policy of imposing restrictive ceilings on deficits and debt. Our theoretical framework is a generalization of the government intertemporal budget constraint which allows for time-varying interest rates, endogenous primary deficits, a finite planning horizon and future policy shifts. We show how published forecasts can be used and we derive a measure of fiscal pressure suitable for the medium term. We find that fiscal policy is not sustainable for most industrialized countries over an infinite horizon, but is sustainable in the medium term in the absence of ceilings. Imposing ceilings, however, generates unsustainability.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1612.
Date of creation: Mar 1997
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Other versions of this item:
- Uctum, Merih & Wickens, Michael, 2000. " Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 197-222, May.
- Merih Uctum & Michael Wickens, 1996. "Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis," Research Paper 9615, Federal Reserve Bank of New York.
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- H6 - Public Economics - - National Budget, Deficit, and Debt
- H87 - Public Economics - - Miscellaneous Issues - - - International Fiscal Issues; International Public Goods
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