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Fiscal stabilisation rule

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  • Shahnazarian, Hovick

Abstract

This paper decomposes the fiscal balance into a cyclical and a structural component using an optimal fiscal stabilisation rule derived from a loss function where the government is assumed to keep structural balance close to the targeted surplus for fiscal balance while at the same time stabilising the GDP- and the inflation gap. A first-order Taylor expansion of fiscal balance is then used to further disaggregate the different components of fiscal balance. These practical policy rules can be used to calculate the magnitude of automatic stabilisers and the appropriate discretionary fiscal policies conditional on the state of the economy.

Suggested Citation

  • Shahnazarian, Hovick, 2022. "Fiscal stabilisation rule," MPRA Paper 115061, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:115061
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    References listed on IDEAS

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    More about this item

    Keywords

    Stabilisation policy; fiscal stabilisation rules; Automatic stabilisers; Discretionary fiscal policy;
    All these keywords.

    JEL classification:

    • 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; Modern Monetary Theory
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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