Choice of The Optimum Fiscal Rule – The Long Run Perspective
AbstractPaper examines the problem of choice of an optimal fiscal rule in the long run. An ideal rule would typically assure fair distribution of utility over generations, while allowing to maintain the sustainable fiscal position. Three commonly used types: debt, deficit and expenditure rules are considered. The main conclusion is that only the modified deficit rule fulfils the assumptions. The rule requires that government’s policy should aim at keeping the debt-to-GDP ratio constant over the economic cycle. The analysis is extended by taking into account the specific situation of the developing countries. An optimum fiscal constraint is then the Modified Golden Rule, according to which the public assets-to-GDP ratio should be held constant over the cycle.
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Bibliographic InfoPaper provided by EconWPA in its series Public Economics with number 0501007.
Length: 28 pages
Date of creation: 26 Jan 2005
Date of revision:
Note: Type of Document - pdf; pages: 28
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fiscal rules; fiscal policy; long run;
Find related papers by JEL classification:
- D6 - Microeconomics - - Welfare Economics
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- H - Public Economics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-16 (All new papers)
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- David Prušvic, 2010. "European Fiscal Policy Rules: First 15 Years," Politická ekonomie, University of Economics, Prague, vol. 2010(1), pages 51-69.
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