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From debt arithmetic to fiscal sustainability and fiscal rules: taking stock and policy lessons

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  • Economides, George
  • Koliousi, Giota
  • Miaouli, Natasha
  • Philippopoulos, Apostolis

Abstract

We start by clarifying the role of the interest rate-growth rate differential in debt arithmetic with numerical examples for the Greek economy. In turn, buidling upon this popular approach to fiscal sustainability, which is based on the intertemporal government budget constraint only, we make a number of methodological points that question the quantitative usefulness of standard calculations. Among other things, we argue that a structural approach is needed and this reveals the necessity of fiscal rules according to which fiscal instruments systematically react to public debt imbalances. This naturally enables us to evaluate the EU's fiscal rules and to suggest simple and implementable alternatives. Throughout, we confront our arguments with data from the Euro Area.

Suggested Citation

  • Economides, George & Koliousi, Giota & Miaouli, Natasha & Philippopoulos, Apostolis, 2024. "From debt arithmetic to fiscal sustainability and fiscal rules: taking stock and policy lessons," LSE Research Online Documents on Economics 122241, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:122241
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    References listed on IDEAS

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    7. George Economides & Apostolis Philippopoulos, 2023. "Fiscal Sustainability: Interest Rates, Growth and Debt-based Policy Rules," EconPol Forum, CESifo, vol. 24(04), pages 11-15, July.
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    Keywords

    fiscal policy; public debt dynamics; Euro area;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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