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Public Debt Frontier. A toolkit for analyzing fiscal policy and debt sustainability

Author

Listed:
  • Gonzalo F. de-Córdoba

    (University of Malaga, Spain)

  • Benedetto Molinari

    (University of Malaga, Spain; Rimini Centre for Economic Analysis)

  • José L. Torres

    (University of Malaga, Spain)

Abstract

This paper provides a twofold contribution. First, it proposes a synthetic and visual indicator to assess public debt sustainability. This indicator summarizes in a single diagram the linkage between economic activity, government’s budget, and the maximum amount of public debt that is sustainable in the long run. The backing theory is a neoclassical growth model augmented with endogenous tax revenues, disaggregated public spending, different production technologies for public and private goods, non-atomistic wage setters in public labor (unions), and a fully specified maturity curve for public bonds. The second contribution of the paper is to develop and present a stand-alone software that analyzes public debt sustainability in response to variations of fiscal policy. This toolkit is useful for managing public debt or to place an additional constraint on government’s budget. We provide an example of its usage for the emblematic case of Greece during the last public debt crisis.

Suggested Citation

  • Gonzalo F. de-Córdoba & Benedetto Molinari & José L. Torres, 2018. "Public Debt Frontier. A toolkit for analyzing fiscal policy and debt sustainability," Working Paper series 18-36, Rimini Centre for Economic Analysis.
    • Handle: RePEc:rim:rimwps:18-36
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    References listed on IDEAS

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    More about this item

    Keywords

    Fiscal policy; Public debt sustainability; Endogenous Tax revenues; DSGE model; Debt-dependent government spending; Python;
    All these keywords.

    JEL classification:

    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • 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
    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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