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From debt arithmetic to fiscal sustainability and fiscal rules: taking stock and policy lessons

Author

Listed:
  • George Economides
  • Giota Koliousi
  • Natasha Miaouli
  • Apostolis Philippopoulos

Abstract

We start by clarifying the role of the interest rate-growth rate differential in debt arithmetic with numerical examples for the Greek economy. In turn, building upon this popular approach to fiscal sustainability, which is based on the intertemporal government budget constraint only, we make a number of methodological points that question the quantitative usefulness of standard calculations. Among other things, we argue that a structural approach is needed and this reveals the necessity of fiscal rules according to which fiscal instruments systematically react to public debt imbalances. This naturally enables us to evaluate the EU's fiscal rules and to suggest simple and implementable alternatives. Throughout, we confront our arguments with data from the Euro Area.

Suggested Citation

  • George Economides & Giota Koliousi & Natasha Miaouli & Apostolis Philippopoulos, 2024. "From debt arithmetic to fiscal sustainability and fiscal rules: taking stock and policy lessons," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 194, Hellenic Observatory, LSE.
    • Handle: RePEc:hel:greese:194
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    File URL: https://www.lse.ac.uk/Hellenic-Observatory/Assets/Documents/Publications/GreeSE-Papers/GreeSE-No194.pdf
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    More about this item

    Keywords

    Fiscal policy; public debt dynamics; Euro Area;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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