A Comparison of Debt and Primary-deficit Constraints
AbstractThis paper compares constraints on the public debt with constraints on the primary deficit. The analysis takes into account how an optimizing government reacts to the different constraints when deciding on a spending and borrowing plan. We find that the economy behaves similarly under both constraints, although for our benchmark calibration welfare is higher under the debt constraint. Further, the debt constraint is more robust against changes in the interest rate. Our results lend support to the enhanced focus on the public debt after the recent reform of the Stability and Growth Pact.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6897.
Date of creation: Jul 2008
Date of revision:
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Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General
- H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-07-14 (All new papers)
- NEP-MAC-2008-07-14 (Macroeconomics)
- NEP-PUB-2008-07-14 (Public Finance)
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