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Keynesian And Neoclassical Fiscal Sustainability Indicators, With Applications To Emu Member Countries

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Author Info

  • Alberto Bagnai

    (Department of Public Economics, University of Rome I)

Abstract

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded on the dynamic stability approach originated by Domar (1944); secondly, it looks at sustainability in EMU member countries, with particular attention given to the relations between sustainability and the design of fiscal rules. The results show that the 3% rule imposed by the Maastricht treaty can be justified as a sustainability requirement for an 'average' EMU member country. At the same time, the dispersion around this average is quite substantial: this questions the viability of uniform deficit caps across EMU member countries.

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File URL: http://128.118.178.162/eps/pe/papers/0411/0411005.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Public Economics with number 0411005.

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Length: 27 pages
Date of creation: 14 Nov 2004
Date of revision:
Handle: RePEc:wpa:wuwppe:0411005

Note: Type of Document - pdf; pages: 27
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Web page: http://128.118.178.162

Related research

Keywords: public debt sustainability; dynamic analysis; solvency constraint; EMU; fiscal rules;

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References

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  1. James Payne, 1997. "International evidence on the sustainability of budget deficits," Applied Economics Letters, Taylor & Francis Journals, vol. 4(12), pages 775-779.
  2. James Tobin & Michael Haliassos, 1988. "The Macroeconomics of Government Finance," Cowles Foundation Discussion Papers 888, Cowles Foundation for Research in Economics, Yale University.
  3. Buiter, Willem H & Corsetti, Giancarlo & Roubini, Nouriel, 1992. "`Excessive Deficits': Sense and Nonsense in the Treaty of Maastricht," CEPR Discussion Papers 750, C.E.P.R. Discussion Papers.
  4. Bagnai, Alberto & Carlucci, Francesco, 2003. "An aggregate model for the European Union," Economic Modelling, Elsevier, vol. 20(3), pages 623-649, May.
  5. Giancarlo Corsetti & Nouriel Roubini, 1991. "Fiscal Deficits, Public Debt and Government Solvency: Evidence from OECD Countries," NBER Working Papers 3658, National Bureau of Economic Research, Inc.
  6. Persson, Torsten, 1985. "Deficits and intergenerational welfare in open economies," Journal of International Economics, Elsevier, vol. 19(1-2), pages 67-84, August.
  7. Tobin, James, 1986. "The Monetary-Fiscal Mix: Long-run Implications," American Economic Review, American Economic Association, vol. 76(2), pages 213-18, May.
  8. Nigel Andrew Chalk & Richard Hemming, 2000. "Assessing Fiscal Sustainability in Theory and Practice," IMF Working Papers 00/81, International Monetary Fund.
  9. Michael Artis & Massimiliano Marcellino, . "Fiscal Solvency and Fiscal Forecasting in Europe," Working Papers 142, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. O'Connell, Stephen A & Zeldes, Stephen P, 1988. "Rational Ponzi Games," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 431-50, August.
  11. Hamilton, James D & Flavin, Marjorie A, 1986. "On the Limitations of Government Borrowing: A Framework for EmpiricalTesting," American Economic Review, American Economic Association, vol. 76(4), pages 808-19, September.
  12. Howell H. Zee, 1988. "The Sustainability and Optimality of Government Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 658-685, December.
  13. Smith, Gary, 1979. "The long run consequences of monetary and fiscal policies when the government's budget is not balanced," Journal of Public Economics, Elsevier, vol. 11(1), pages 59-79, February.
  14. Wilcox, David W, 1989. "The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 21(3), pages 291-306, August.
  15. Matthew Canzoneri & Behzad Diba, 1999. "The Stability and Growth Pact: A Delicate Balance or an Albatross?," Empirica, Springer, vol. 26(3), pages 241-258, September.
  16. Arne Heise, 2002. "Optimal Public Debts, Sustainable Deficits, and Budgetary Consolidation," Empirica, Springer, vol. 29(4), pages 319-337, December.
  17. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Maastricht e l'aritmetica del debito pubblico
    by Alberto Bagnai in Goofynomics on 2013-01-07 23:19:00
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. Pica, Federico & Villani, Salvatore, 2012. "Debito, Mezzogiorno e sviluppo. A trivial exercise
    [Sovereign Debt Sustainability, Mezzogiorno and Economic Growth. A Trivial Exercise]
    ," MPRA Paper 43199, University Library of Munich, Germany, revised 28 Nov 2012.

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