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Fiscal Sustainability

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  • Evan Tanner
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    Abstract

    This paper critically reviews recent work regarding the sustainability of public debt. It argues that Debt Sustainability Analyses (DSAs) should be more than mere mechanical simulation exercises. Instead, a DSA should be linked to some objective regarding the distribution of fiscal burdens and distortions over time (in the tradition of Barro’s 1979 tax smoothing objective). The paper discusses objective functions that yield simple and transparent fiscal policy rules.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/89.

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    Length: 49
    Date of creation: 22 Apr 2013
    Date of revision:
    Handle: RePEc:imf:imfwpa:13/89

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    Related research

    Keywords: Fiscal sustainability; Public debt; Fiscal policy; Debt sustainability analysis; Business cycles; fiscal adjustment; budget constraint; fiscal burden; primary deficit; fiscal authority; government spending; tax collection; fiscal reaction; taxation; fiscal reaction function; tax revenues; tax burden; fiscal imbalances; tax system; public expenditures; public spending; expenditure ratio; sustainable fiscal policy; primary surplus ratio; fiscal rules; foreign debt; fiscal plan; tax administration; fiscal policy rules; tax base; fiscal policy debt; tax rates; fiscal balances; public sector solvency; fiscal institutions; fiscal component; spending cuts; debt service; government expenditures; tax bases; primary balance ratio; fiscal policies; fiscal stress; fiscal deficits; tax evasion; fiscal adjustments; fiscal burdens; fiscal consolidations; tax ratio;

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    References

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    1. Boskin, Michael J, et al, 1985. "New Estimates of the Value of Federal Mineral Rights and Land," American Economic Review, American Economic Association, vol. 75(5), pages 923-36, December.
    2. Huw Lloyd-Ellis & Shiqiang Zhang & Xiaodong Zhu, 2001. "Tax Smoothing with Stochastic Interest Rates: A Re-assessment of Clinton's Fiscal Legacy," Cahiers de recherche CREFE / CREFE Working Papers 125, CREFE, Université du Québec à Montréal.
    3. Andrew B. Abel & N. Gregory Mankiw & Lawrence H. Summers & Richard J. Zeckhauser, 1986. "Assessing Dynamic Efficiency: Theory and Evidence," NBER Working Papers 2097, National Bureau of Economic Research, Inc.
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    5. Rick Van der Ploeg & Tony Venables, 2011. "Harnessing windfall revenues: Optimal policies for resource-rich developing economies," Economics Series Working Papers 543, University of Oxford, Department of Economics.
    6. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal Fiscal Policy in a Business Cycle Model," NBER Working Papers 4490, National Bureau of Economic Research, Inc.
    7. Jorge Restrepo & Carlos Garcia & Evan Tanner, 2011. "Fiscal Rules in a Volatile World," IMF Working Papers 11/56, International Monetary Fund.
    8. Kingston, G., 1989. "Should Marginal Tax Rates Be Equalized Through Time?," Papers 89-8, New South Wales - School of Economics.
    9. Eisner, Robert & Pieper, Paul J, 1986. "A New View of the Federal Debt and Budget Deficits: Reply," American Economic Review, American Economic Association, vol. 76(5), pages 1156-57, December.
    10. Garcia, Carlos J. & Restrepo, Jorge E. & Tanner, Evan, 2011. "Fiscal rules in a volatile world: A welfare-based approach," Journal of Policy Modeling, Elsevier, vol. 33(4), pages 649-676, July.
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    12. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
    13. Evan Tanner & Alberto Ramos, 2003. "Fiscal sustainability and monetary versus fiscal dominance: evidence from Brazil, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(7), pages 859-873.
    14. Enrique G. Mendoza & P. Marcelo Oviedo, 2006. "Fiscal Policy and Macroeconomic Uncertainty in Developing Countries: The Tale of the Tormented Insurer," NBER Working Papers 12586, National Bureau of Economic Research, Inc.
    15. Gabriel Talmain, . "An Analytical Approximate Solution to the Problem of Precautionary Savings," Discussion Papers 98/4, Department of Economics, University of York.
    16. S. Rao Aiyagari & Albert Marcet & Thomas J. Sargent & Juha Seppala, 2002. "Optimal Taxation without State-Contingent Debt," Journal of Political Economy, University of Chicago Press, vol. 110(6), pages 1220-1254, December.
    17. Carmen M. Reinhart & Kenneth S. Rogoff & Miguel A. Savastano, 2003. "Debt Intolerance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 1-74.
    18. Michael Woodford, 2001. "Fiscal Requirements for Price Stability," NBER Working Papers 8072, National Bureau of Economic Research, Inc.
    19. 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.
    20. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
    21. Ley, Eduardo, 2009. "Fiscal (and external) sustainability," MPRA Paper 13693, University Library of Munich, Germany.
    22. Evan Tanner & Kevin Carey, 2008. "The Perils of Tax Smoothing: Sustainable Fiscal Policy with Random Shocks to Permanent Output," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 58(11-12), pages 502-524, December.
    23. Atish R. Ghosh & Jun I. Kim & Enrique G. Mendoza & Jonathan D. Ostry & Mahvash S. Qureshi, 2011. "Fiscal Fatigue, Fiscal Space and Debt Sustainability in Advanced Economies," NBER Working Papers 16782, National Bureau of Economic Research, Inc.
    24. Dale F. Gray & Elena Loukoianova & Samuel W. Malone & Cheng Hoon Lim, 2008. "A Risk-Based Debt Sustainability Framework," IMF Working Papers 08/40, International Monetary Fund.
    25. Aaron Drew & Ben Hunt, 1998. "The Forecasting and Policy System: stochastic simulations of the core model," Reserve Bank of New Zealand Discussion Paper Series G98/6, Reserve Bank of New Zealand.
    26. McCallum, Bennett T, 1984. "Are Bond-Financed Deficits Inflationary? A Ricardian Analysis," Journal of Political Economy, University of Chicago Press, vol. 92(1), pages 123-35, February.
    27. Michael Kumhof & Evan Tanner, 2005. "Government Debt," IMF Working Papers 05/57, International Monetary Fund.
    28. Evan Tanner & Issouf Samaké, 2006. "Probabilistic Sustainability of Public Debt," IMF Working Papers 06/295, International Monetary Fund.
    29. Alan J. Auerbach & Jagadeesh Gokhale & Laurence J. Kotlikoff, 1994. "Generational Accounting: A Meaningful Way to Evaluate Fiscal Policy," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 73-94, Winter.
    30. Jagadeesh Gokhale & Kent Smetters, 2003. "Fiscal and generational imbalances: new budget measures for new budget priorities," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Dec.
    31. Nathaniel Frank & Eduardo Ley, 2009. "On the Probabilistic Approach to Fiscal Sustainability: Structural Breaks and Non-Normality," IMF Staff Papers, Palgrave Macmillan, vol. 56(4), pages 742-757, November.
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