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Choice of The Optimum Fiscal Rule – The Long Run Perspective

  • Michal Mackiewicz

    (Institute of Economics, University of Lodz)

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.

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Paper provided by EconWPA in its series Public Economics with number 0501007.

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Length: 28 pages
Date of creation: 26 Jan 2005
Date of revision:
Handle: RePEc:wpa:wuwppe:0501007
Note: Type of Document - pdf; pages: 28
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