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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)

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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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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
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Handle: RePEc:wpa:wuwppe:0411005

Note: Type of Document - pdf; pages: 27
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Web page: http://129.3.20.41

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

Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management

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  1. Persson, Torsten, 1985. "Deficits and intergenerational welfare in open economies," Journal of International Economics, Elsevier, vol. 19(1-2), pages 67-84, August. [Downloadable!] (restricted)
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  2. 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. [Downloadable!] (restricted)
  3. Haliassos, Michael & Tobin, James, 1990. "The macroeconomics of government finance," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 17, pages 889-959 Elsevier. [Downloadable!] (restricted)
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  4. 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. [Downloadable!] (restricted)
  5. Bagnai, Alberto & Carlucci, Francesco, 2003. "An aggregate model for the European Union," Economic Modelling, Elsevier, vol. 20(3), pages 623-649, May. [Downloadable!] (restricted)
  6. Artis, Michael J & Marcellino, Massimiliano, 1998. "Fiscal Solvency and Fiscal Forecasting in Europe," CEPR Discussion Papers 1836, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
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  8. Payne, James E, 1997. "International Evidence on the Sustainability of Budget Deficits," Applied Economics Letters, Taylor and Francis Journals, vol. 4(12), pages 775-79, December. [Downloadable!] (restricted)
  9. Tobin, James, 1986. "The Monetary-Fiscal Mix: Long-run Implications," American Economic Review, American Economic Association, vol. 76(2), pages 213-18, May. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
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