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Fiscal Rules in a Volatile World: A Welfare-Based Approach

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  • Jorge Restrepo
  • Carlos Garcia
  • Evan Tanner

Abstract

It is widely agreed that a fiscal rule should boost discipline and credibility, reduce macroeconomic volatility, and be easily understood. To support such goals, a government may run structural surpluses and accumulate 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

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/56.

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Length: 70
Date of creation: 01 Mar 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/56

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Keywords: Budgets; Commodity prices; Economic models; Government expenditures; Revenues;

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References

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Citations

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Cited by:
  1. 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.
  2. Juan Carlos Hatchondo & Francisco Roch & Leonardo Martinez, 2012. "Fiscal Rules and the Sovereign Default Premium," IMF Working Papers 12/30, International Monetary Fund.

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