Numerical fiscal rules for economic unions: The role of sovereign spreads
Juan Carlos Hatchondo,
Leonardo Martinez and
Francisco Roch
Economics Letters, 2022, vol. 210, issue C
Abstract:
We study gains from introducing common numerical fiscal rules in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit produces welfare gains across economies in the Union. This result also implies that a spread limit is a more robust rule than a debt limit for a single economy that faces uncertainty about its key characteristics.
Keywords: Fiscal rules; Sovereign spread; Spread limit; Default; Long-term debt; Debt dilution; Debt intolerance (search for similar items in EconPapers)
JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)
Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165176521004353
Full text for ScienceDirect subscribers only
Related works:
Working Paper: Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads (2022) 
Working Paper: Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads (2021) 
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:210:y:2022:i:c:s0165176521004353
DOI: 10.1016/j.econlet.2021.110168
Access Statistics for this article
Economics Letters is currently edited by Economics Letters Editorial Office
More articles in Economics Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().