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Keynesian And Neoclassical Fiscal Sustainability Indicators, With Applications To Emu Member Countries

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  • Alberto Bagnai

    (Department of Public Economics, University of Rome I)

Abstract

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded on the dynamic stability approach originated by Domar (1944); secondly, it looks at sustainability in EMU member countries, with particular attention given to the relations between sustainability and the design of fiscal rules. The results show that the 3% rule imposed by the Maastricht treaty can be justified as a sustainability requirement for an 'average' EMU member country. At the same time, the dispersion around this average is quite substantial: this questions the viability of uniform deficit caps across EMU member countries.

Suggested Citation

  • Alberto Bagnai, 2004. "Keynesian And Neoclassical Fiscal Sustainability Indicators, With Applications To Emu Member Countries," Public Economics 0411005, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0411005
    Note: Type of Document - pdf; pages: 27
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    References listed on IDEAS

    as
    1. Corsetti, Giancarlo & Roubini, Nouriel, 1991. "Fiscal deficits, public debt, and government solvency: Evidence from OECD countries," Journal of the Japanese and International Economies, Elsevier, vol. 5(4), pages 354-380, December.
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    5. Bravo, Ana Bela Santos & Silvestre, Antonio Luis, 2002. "Intertemporal sustainability of fiscal policies: some tests for European countries," European Journal of Political Economy, Elsevier, vol. 18(3), pages 517-528, September.
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    8. Smith, Gary, 1979. "The long run consequences of monetary and fiscal policies when the government's budget is not balanced," Journal of Public Economics, Elsevier, vol. 11(1), pages 59-79, February.
    9. Buiter, W.H. & Corsetti, G. & Roubini, N., 1992. "Excessive Deficits: Sense and Nonsence in the Treaty of Maastricht," Papers 674, Yale - Economic Growth Center.
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    11. Howell H. Zee, 1988. "The Sustainability and Optimality of Government Debt," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 658-685, December.
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    16. Marco Buti & Gabriele Giudice, 2002. "Maastricht's Fiscal Rules at Ten: An Assessment," Journal of Common Market Studies, Wiley Blackwell, vol. 40(5), pages 823-848, December.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Maastricht e l'aritmetica del debito pubblico
      by Alberto Bagnai in Goofynomics on 2013-01-08 05:19:00
    2. IL DEBITO PUBBLICO GRAVA SULLE GENERAZIONI FUTURE? MOLTO, MOLTO MENO DELL'EURO, MR. MOSCOVICI
      by Quarantotto in Orizzonte48 on 2017-07-11 19:08:00

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    Cited by:

    1. Pica, Federico & Villani, Salvatore, 2012. "Debito, Mezzogiorno e sviluppo. A trivial exercise
      [Sovereign Debt Sustainability, Mezzogiorno and Economic Growth. A Trivial Exercise]
      ," MPRA Paper 43199, University Library of Munich, Germany, revised 28 Nov 2012.

    More about this item

    Keywords

    public debt sustainability; dynamic analysis; solvency constraint; EMU; fiscal rules;

    JEL classification:

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

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