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Choice of The Optimum Fiscal Rule – The Long Run Perspective

Author

Listed:
  • Michal Mackiewicz

    (Institute of Economics, University of Lodz)

Abstract

Paper examines the problem of choice of an optimal fiscal rule in the long run. An ideal rule would typically assure fair distribution of utility over generations, while allowing to maintain the sustainable fiscal position. Three commonly used types: debt, deficit and expenditure rules are considered. The main conclusion is that only the modified deficit rule fulfils the assumptions. The rule requires that government’s policy should aim at keeping the debt-to-GDP ratio constant over the economic cycle. The analysis is extended by taking into account the specific situation of the developing countries. An optimum fiscal constraint is then the Modified Golden Rule, according to which the public assets-to-GDP ratio should be held constant over the cycle.

Suggested Citation

  • Michal Mackiewicz, 2005. "Choice of The Optimum Fiscal Rule – The Long Run Perspective," Public Economics 0501007, EconWPA.
  • Handle: RePEc:wpa:wuwppe:0501007
    Note: Type of Document - pdf; pages: 28
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    Cited by:

    1. David Prušvic, 2010. "Evropská fiskální pravidla a jejich účinnost: prvních 15 let
      [European Fiscal Policy Rules: First 15 Years]
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(1), pages 51-69.

    More about this item

    Keywords

    fiscal rules; fiscal policy; long run;

    JEL classification:

    • D6 - Microeconomics - - Welfare Economics
    • D7 - Microeconomics - - Analysis of Collective Decision-Making
    • H - Public Economics

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