Can EU high indebted countries manage to fulfill fiscal sustainability? Some evidence from the solvency constraint
AbstractThe public finance constraints introduced by the Maastricht Treaty have been subject to numerous debates among economists. Balassone and Franco (2000) pointed out, for instance, that the fulfillment of these constraints allows for fiscal discipline and flexibility and excludes any bias from an unsustainable fiscal policy in the long run. But data shows that many of the advanced economies have exceeded the limits for budgetary deficits and public debt since 1993. Therefore, the question on whether fiscal policy is sustainable naturally arises. The aim of this paper is to investigate the achievement of the solvency constraint for the European Union high indebted countries using a simple public debt dynamic model. The required primary surplus is estimated under different scenarios, namely: (i) a baseline that aims at stabilizing public debt; (ii) a 60% of GDP scenario; and (iii) a minimum public debt scenario that differs among the countries under analysis. From results, we try to draw conclusions on what really matters for fiscal sustainability.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 464.
Length: 19 pages
Date of creation: Aug 2012
Date of revision:
Fiscal policy; primary balance; public debt; fiscal sustainability; Maastricht Treaty;
Find related papers by JEL classification:
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
- H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-13 (All new papers)
- NEP-EEC-2013-04-13 (European Economics)
- NEP-MAC-2013-04-13 (Macroeconomics)
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