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The sustainability of euro area debt: a re-assessment

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  • Peter Wierts
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    Abstract

    This paper re-assesses findings of the literature that the systematic debt stabilising response in fiscal policy has been sufficiently strong for keeping debt ratios on a sustainable path in Euro area countries. In doing so, it adjusts the standard approach to the specific context of Economic and Monetary Union. Results show that before 1993 policy responses towards net and gross debt are comparable. After 1993, the reaction to net debt weakens while policies react more strongly to the build-up of gross debt according to the definition of the EU fiscal rules. This suggests that financial assets have increasingly been used for managing gross debt ratios while improving net worth has received less priority.

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    File URL: http://www.dnb.nl/binaries/Working%20Paper%20134-2007_tcm46-146791.pdf
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    Bibliographic Info

    Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 134.

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    Date of creation: Apr 2007
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    Handle: RePEc:dnb:dnbwpp:134

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    Keywords: debt; sustainability; EMU; stock flow adjustment;

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    1. Fernando C. Ballabriga & Carlos Martinez-Mongay, 2005. "Sustainability of EU public finances," European Economy - Economic Papers 225, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    2. Hagen, Jürgen von & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 148, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    3. Henning Bohn, 1998. "The Behavior Of U.S. Public Debt And Deficits," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 949-963, August.
    4. Casper van Ewijk & Nick Draper & Harry ter Rele & Ed Westerhout, 2006. "Ageing and the sustainability of Dutch public finances," CPB Special Publication 61, CPB Netherlands Bureau for Economic Policy Analysis.
    5. Vincent Koen & Paul van den Noord, 2005. "Fiscal Gimmickry in Europe: One-Off Measures and Creative Accounting," OECD Economics Department Working Papers 417, OECD Publishing.
    6. Jürgen von Hagen & Andrew Hughes Hallett & Rolf Strauch, 2001. "Budgetary Consolidation in EMU," European Economy - Economic Papers 148, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
    7. repec:fth:eeccco:148 is not listed on IDEAS
    8. Andrew Hughes Hallett & John Lewis, 2005. "Fiscal Discipline before and after EMU - Permanent Weight Loss or Crash Diet?," Vanderbilt University Department of Economics Working Papers 0516, Vanderbilt University Department of Economics.
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    Cited by:
    1. Peter Wierts & Guido Schotten, 2008. "Dutch natural Gas Revenues and Fiscal Policy: Theory versus Practice," DNB Occasional Studies 605, Netherlands Central Bank, Research Department.

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