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Long-Run Debt Ratios with Fiscal Fatigue

Author

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  • Robertson, D.
  • Tambakis, D.

Abstract

We investigate the implications of fiscal fatigue – governments’ declining ability to increase primary fiscal balances with rising public debt - utilising the cubic policy rule estimated by Ghosh et al. (2013). We characterize its equilibrium debt-output ratios and fiscal space, and analyze its dynamic stability in the deterministic (long-run) case. There may be up to three equilibria, of which the intermediate one will typically require a stability criterion stricter than fiscal solvency. We illustrate numerically for six developed economies.

Suggested Citation

  • Robertson, D. & Tambakis, D., 2016. "Long-Run Debt Ratios with Fiscal Fatigue," Cambridge Working Papers in Economics 1674, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1674
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    References listed on IDEAS

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    Cited by:

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    2. Iancu, Aurel & Olteanu, Dan Constantin, 2023. "Debt Limit, Fiscal Space and Fiscal Fatigue in the Central and Eastern European Countries of EU," Working Papers of National Institute for Economic Research 230629, Institutul National de Cercetari Economice (INCE).

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H0 - Public Economics - - General
    • H6 - Public Economics - - National Budget, Deficit, and Debt

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