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Application of the Swiss Fiscal Rule to Artificial Data: A Monte Carlo Simulation

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  • Alain Geier

Abstract

The Swiss fiscal rule or "debt brake" is applied to simulated data of economic output and fiscal revenues. The budget remains almost perfectly balanced and the debt ratio stable over the medium and long term: The cyclical adjustment of the debt brake is effective in terms of its primary objective of achieving a balanced budget over the medium term. The rule also performs well with respect to the objective of taking into account the position of the economy in the cycle. In the case of a non-stationary GDP series, however, this result can not be guaranteed anymore.

Suggested Citation

  • Alain Geier, 2012. "Application of the Swiss Fiscal Rule to Artificial Data: A Monte Carlo Simulation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(I), pages 37-55, March.
  • Handle: RePEc:ses:arsjes:2012-i-2
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    File URL: http://www.sjes.ch/papers/2012-I-2.pdf
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    References listed on IDEAS

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    1. Frank Bodmer, 2006. "The Swiss Debt Brake: How it Works and What Can Go Wrong," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(III), pages 307-330, September.
    2. Alan J. Auerbach, 2008. "Federal Budget Rules: The US Experience," NBER Working Papers 14288, National Bureau of Economic Research, Inc.
    3. Steven A. Symansky & Xavier Debrun & Natan P. Epstein, 2008. "A New Fiscal Rule; Should Israel “Go Swiss?”," IMF Working Papers 08/87, International Monetary Fund.
    4. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    5. Olivier Jean Blanchard, 1990. "Suggestions for a New Set of Fiscal Indicators," OECD Economics Department Working Papers 79, OECD Publishing.
    6. Antonio Fatás & Ilian Mihov, 2003. "The Case for Restricting Fiscal Policy Discretion," The Quarterly Journal of Economics, Oxford University Press, vol. 118(4), pages 1419-1447.
    7. Teresa Daban Sanchez & Steven A. Symansky & Gian M Milesi-Ferretti & Enrica Detragiache & Gabriel Di Bella, 2003. "Rules-Based Fiscal Policy in France, Germany, Italy, and Spain," IMF Occasional Papers 225, International Monetary Fund.
    8. H. Badinger, 2009. "Fiscal rules, discretionary fiscal policy and macroeconomic stability: an empirical assessment for OECD countries," Applied Economics, Taylor & Francis Journals, vol. 41(7), pages 829-847.
    9. Robert P. Hagemann, 1999. "The Structural Budget Balance The IMF’s Methodology," IMF Working Papers 99/95, International Monetary Fund.
    10. Daniel Lampart, 2005. "Die konjunkturelle Ausrichtung der Schweizer Finanzpolitik im internationalen Vergleich," KOF Working papers 05-109, KOF Swiss Economic Institute, ETH Zurich.
    11. Edward M. Gramlich, 1990. "Fiscal Indicators," OECD Economics Department Working Papers 80, OECD Publishing.
    12. Christoph A. Schaltegger & Martin Weder, 2010. "Fiskalpolitik als antizyklisches Instrument? Eine Betrachtung der Schweiz," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 11(2), pages 146-177, May.
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    Cited by:

    1. Adam Pigon & Michal Ramsza, 2016. "Impact Of A Modified Hp Filter On Countercyclical Behavior Of The Swiss Fiscal Rule," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 11(4), pages 661-674, December.

    More about this item

    Keywords

    Balanced Budget; Debt; Deficit; Budgeting; Business Cycle;

    JEL classification:

    • 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

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