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Macroeconomic uncertainties, prudent debt targets and fiscal rules

Author

Listed:
  • Falilou Fall

    (OECD)

  • Jean-Marc Fournier

    (OECD)

Abstract

The sharp rise in debt experienced by most OECD countries raises questions about the prudent debt level countries should target. It also raises questions about the fiscal frameworks needed to reach them and to accommodate cyclical fluctuations along the path towards a prudent debt target. The objective of this paper is to define long-run prudent debt targets for OECD countries and country-specific fiscal rules. To this end, a semi-structural macroeconomic model for OECD countries and primary balance reaction functions are estimated. The shocks derived from these estimations are used to assess uncertainties surrounding the development of macroeconomic variables. The model is simulated up to 2040 to derive the prudent debt target for each country and design country-specific fiscal rules. Incertitudes macroéconomiques, cibles prudentes d'endettement et règles budgétaires La forte hausse de la dette que connaissent la majorité des pays de l’OCDE interroge sur le niveau prudent d’endettement que les pays doivent cibler. Elle interroge également sur les cadres budgétaires nécessaires pour y parvenir et absorber les fluctuations de la conjoncture tout au long de la trajectoire vers une cible prudente d’endettement. L’objectif de ce document est de définir des cibles prudentes d’endettement pour les pays de l’OCDE et des règles budgétaires propres à chacun d’entre eux. À cet effet, on procède à l’estimation d’un modèle macroéconomique semi-structurel des pays de l’OCDE et de fonctions de réaction du solde primaire. Les chocs calculés à partir de ces estimations servent à évaluer les incertitudes entourant l’évolution de variables macroéconomiques. La simulation est effectuée jusqu’en 2040 pour déduire le niveau d’endettement prudent pour chaque pays et élaborer des règles budgétaires propres à chacun.

Suggested Citation

  • Falilou Fall & Jean-Marc Fournier, 2015. "Macroeconomic uncertainties, prudent debt targets and fiscal rules," OECD Economics Department Working Papers 1230, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1230-en
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    File URL: http://dx.doi.org/10.1787/5jrxv0bf2vmx-en
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    Cited by:

    1. Jean-Marc Fournier, 2016. "The Positive Effect of Public Investment on Potential Growth," OECD Economics Department Working Papers 1347, OECD Publishing.
    2. Debra Bloch & Falilou Fall, 2016. "Government Debt Indicators:Understanding the Data," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-28, February.
    3. Bassanetti , Antonio & Cottarelli , Carlo & Presbitero, Andrea, 2016. "Lost and Found: Market Access and Public Debt Dynamics," SEP Working Papers 2016/5, LUISS School of European Political Economy.
    4. Álvaro Pina, 2016. "Making public finances more growth and equity-friendly in the euro area," OECD Economics Department Working Papers 1316, OECD Publishing.
    5. Annabelle Mourougane & Jarmila Botev & Jean-Marc Fournier & Nigel Pain & Elena Rusticelli, 2016. "Can an Increase in Public Investment Sustainably Lift Economic Growth?," OECD Economics Department Working Papers 1351, OECD Publishing.
    6. Javier Andrés & Javier J. Pérez & Juan A. Rojas, 2017. "Implicit public debt thresholds: an empirical exercise for the case of Spain," Working Papers 1701, Banco de España;Working Papers Homepage.
    7. Isabelle Joumard & Peter Hoeller & Jean-Marc Fournier & Hermes Morgavi, 2017. "Public debt in India: Moving towards a prudent level?," OECD Economics Department Working Papers 1400, OECD Publishing.
    8. Jarmila Botev & Jean-Marc Fournier & Annabelle Mourougane, 2016. "A Re-assessment of Fiscal Space in OECD Countries," OECD Economics Department Working Papers 1352, OECD Publishing.
    9. Åsa Johansson, 2016. "Public Finance, Economic Growth and Inequality: A Survey of the Evidence," OECD Economics Department Working Papers 1346, OECD Publishing.
    10. Patrice Ollivaud, 2017. "Improving the allocation and efficiency of public spending in Indonesia," OECD Economics Department Working Papers 1381, OECD Publishing.
    11. Goryunov, Yevgeniy, 2016. "Theoretical foundations, properties and interpretation of the budget gap indicators," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 112-132, April.
    12. Debra Bloch & Jean-Marc Fournier, 2018. "The deterioration of the public spending mix during the global financial crisis: Insights from new indicators," OECD Economics Department Working Papers 1465, OECD Publishing.
    13. repec:eee:ecmode:v:66:y:2017:i:c:p:30-41 is not listed on IDEAS
    14. Jean-Marc Fournier & Åsa Johansson, 2016. "The Effect of the Size and the Mix of Public Spending on Growth and Inequality," OECD Economics Department Working Papers 1344, OECD Publishing.
    15. Falilou Fall & Debra Bloch & Jean-Marc Fournier & Peter Hoeller, 2015. "Prudent debt targets and fiscal frameworks," OECD Economic Policy Papers 15, OECD Publishing.
    16. van Riet, Ad, 2018. "Financial repression and high public debt in Europe," Other publications TiSEM 3391dd73-357a-4071-825c-7, Tilburg University, School of Economics and Management.
    17. Roberta, Cardani & Lorenzo, Menna & Patrizio, Tirelli, 2016. "Optimal Public Debt Consolidation with Distributional Conflicts," Working Papers 350, University of Milano-Bicocca, Department of Economics, revised 05 Oct 2016.
    18. Jean-Marc Fournier & Falilou Fall, 2015. "Limits to government debt sustainability," OECD Economics Department Working Papers 1229, OECD Publishing.
    19. Aida Caldera Sánchez & Oliver Röhn, 2016. "How do policies influence GDP tail risks?," OECD Economics Department Working Papers 1339, OECD Publishing.
    20. Roberta, Cardani & Lorenzo, Menna & Patrizio, Tirelli, 2016. "The Optimal Policy Mix to Achieve Public Debt Consolidation," Working Papers 356, University of Milano-Bicocca, Department of Economics, revised 31 Dec 2016.

    More about this item

    Keywords

    debt; dette; fiscal policy; fiscal rules; politique budgétaire; règle budgétaire;

    JEL classification:

    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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