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Beyond 2015: Maintaining Ireland’s Public Finances on a Sustainable Path

  • Cronin, David

    (Central Bank of Ireland)

In this note, three mechanical fiscal rules that are designed to maintain a sustainable path for the public finances are examined. Adherence to a strict numerical target for the deficit ratio has a procyclical effect on the economy’s growth rate. Building a safety margin into deficit targets in the manner of the Stability and Growth Pact allows the public finances to have a stabilising influence on the growth cycle and ensures a lower average government debt ratio is achieved over time. A debt target rule would result in a different path for the structural primary budget balance and the debt ratio over time even when the long run targets for those variables were the same as under the Pact.

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File URL: http://www.centralbank.ie/publications/Documents/Maintaining%20the%20Irish%20Public%20Finances%20on%20a%20Sustainable%20Path%20-%20EL%20version.pdf
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Paper provided by Central Bank of Ireland in its series Economic Letters with number 05/EL/11.

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Date of creation: Jul 2011
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Handle: RePEc:cbi:ecolet:05/el/11
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