Fiscal rules and sustainability of public finances in an endogenous growth model

Barbara Annicchiarico () and Nicola Giammarioli ()
Additional contact information
Nicola Giammarioli: European Central Bank, DG Economics, http://www.ecb.europa.eu/home/html/index.en.html

No 381, Working Paper Series from European Central Bank

Abstract: This paper presents a two period overlapping generations model with endogenous growth in the presence of a public sector with objectives of convergence for public debt and primary balance to GDP ratios. In order to ensure the existence of converging paths towards the target values of fiscal variables, we introduce a simple fiscal policy rule. According to this rule, the primary balance ratio is adjusted in function of the distance between the current and the target levels of the public debt and the primary surplus to GDP ratios. It is shown that the fiscal rule displaying time invariant parameters may produce non linear dynamic processes of adjustment of the fiscal ratios as well as endogenous fluctuations in the rate of growth of the economy. In addition the transitional process towards fiscal targets critically depends on the adjustment tool chosen by the fiscal authorities to implement the rule.

Keywords: Fiscal Policy; Sustainability of Public Finances; Endogenous Growth. (search for similar items in EconPapers)
JEL-codes: H62 H63 O41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pbe
Date: 2004-08
View list of references View citations in EconPapers

Downloads: (external link)
http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp381.pdf (application/pdf)

Related works:
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: http://EconPapers.repec.org/RePEc:ecb:ecbwps:20040381

Ordering information: This working paper can be ordered from
Press and Information Division, European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany

Access Statistics for this paper

More papers in Working Paper Series from European Central Bank
Address: Postfach 16 03 19, Frankfurt am Main, Germany
Contact information at EDIRC.
Series data maintained by Official Publications ().