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How Uncertain Are Long-Run Fiscal Projections? Non-Parametric Stochastic Modelling for New Zealand

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  • Christopher Ball
  • John Creedy
  • Grant Scobie

Abstract

type="main" xml:lang="en"> This article introduces uncertainty into a fiscal projection model which incorporates population ageing along with a number of feedback effects. A new non-parametric method of producing stochastic projections is explored. This allows for the complex nature of the observed joint distributions of relevant variables and their time paths. Stochastic projections of a range of policy responses are produced, allowing for uncertainty regarding the world interest rate, productivity growth and the growth rates of two components of per capita government expenditure. The probability of exceeding a given debt ratio in each projection year, using a particular tax or expenditure policy, can then be evaluated. Examples of tax policies designed to achieve a target debt ratio are examined. Policy implications are briefly discussed.

Suggested Citation

  • Christopher Ball & John Creedy & Grant Scobie, 2016. "How Uncertain Are Long-Run Fiscal Projections? Non-Parametric Stochastic Modelling for New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 49(1), pages 59-76, March.
    • Handle: RePEc:bla:ausecr:v:49:y:2016:i:1:p:59-76
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    Cited by:

    1. Christopher Ball & John Creedy & Grant Scobie, 2018. "The Timing of Income Tax Changes in the Face of Projected Debt Increases," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 51(2), pages 191-210, June.
    2. Buckle, Robert A., 2018. "A quarter of a century of fiscal responsibility: The origins and evolution of fiscal policy governance and institutional arrangements in New Zealand, 1994 to 2018," Working Paper Series 7693, Victoria University of Wellington, Chair in Public Finance.
    3. Buckle, Robert A., 2018. "A quarter of a century of fiscal responsibility: The origins and evolution of fiscal policy governance and institutional arrangements in New Zealand, 1994 to 2018," Working Paper Series 20848, Victoria University of Wellington, Chair in Public Finance.

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