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Debt Projections and Fiscal Sustainability with Feedback Effects

Author

Listed:
  • John Creedy
  • Grant Scobie

    () (The Treasury)

Abstract

This paper analyses long-term fiscal sustainability with a model which incorporates a number of feedback effects. When fiscal policy responds to ensure long-term sustainability, these feedback effects can potentially modify the intended outcomes by either enhancing or dampening the results of the policy interventions. The feedbacks include the effect on labour supply in response to changes in tax rates, changes in the country risk premium in response to higher public debt ratios, and endogenous changes in the rate of productivity growth and savings that respond to interest rates. A model of government revenue, expenditure and public debt which incorporates these feedbacks is used to simulate the outcome of a range of fiscal policy responses. In addition the effects of population ageing and productivity growth are explored.

Suggested Citation

  • John Creedy & Grant Scobie, 2015. "Debt Projections and Fiscal Sustainability with Feedback Effects," Treasury Working Paper Series 15/11, New Zealand Treasury.
  • Handle: RePEc:nzt:nztwps:15/11
    as

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    File URL: https://treasury.govt.nz/sites/default/files/2015-09/twp15-11.pdf
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    References listed on IDEAS

    as
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    6. Craig Fookes, 2011. "Modelling Shocks to New Zealand's Fiscal Position," Treasury Working Paper Series 11/02, New Zealand Treasury.
    7. Felicity C Barker & Robert A Buckle & Robert W St Clair, 2008. "Roles of Fiscal Policy in New Zealand," Treasury Working Paper Series 08/02, New Zealand Treasury.
    8. John Creedy & Grant M. Scobie, 2005. "Population Ageing and Social Expenditure in New Zealand," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 38(1), pages 19-39, March.
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    13. William R. Cline, 2014. "Sustainability of Public Debt in the United States and Japan," Working Paper Series WP14-9, Peterson Institute for International Economics.
    14. Jonathan David Ostry & Atish R. Ghosh & Jun I Kim & Mahvash S Qureshi, 2010. "Fiscal Space," IMF Staff Position Notes 2010/11, International Monetary Fund.
    15. Nick Davis & Richard Fabling, 2002. "Population Ageing and the Efficiency of Fiscal Policy in New Zealand," Treasury Working Paper Series 02/11, New Zealand Treasury.
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    19. Christian Hawkesby & Christie Smith & Christine Tether, 2000. "New Zealand's currency risk premium," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 63, September.
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    Cited by:

    1. Christopher Ball & John Creedy & Grant Scobie, 2015. "Long-run Fiscal Projections under Uncertainty: The Case of New Zealand," Treasury Working Paper Series 15/10, New Zealand Treasury.
    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. 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.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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