Fiscal Rules and the Sovereign Default Premium

Juan Carlos Hatchondo, Leonardo Martinez and Francisco Roch

American Economic Journal: Macroeconomics, 2022, vol. 14, issue 4, 244-73

Abstract: We study fiscal rules using a sovereign default model. A debt-brake (spread-brake) rule imposes a ceiling on the fiscal deficit when the sovereign debt (spread) is above a threshold. For our benchmark calibration, similar gains can be achieved with the optimal debt or spread brake. However, for a "Union" of heterogeneous economies, a common spread brake generates larger gains than a common debt brake. Furthermore, gains from abandoning a common debt brake may be significant for economies that are unnecessarily constrained by the rule. In contrast, abandoning a common spread brake would generate losses for any economy in the Union.

JEL-codes: E62 F34 F41 H61 H63 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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Related works:
Working Paper: Fiscal rules and the Sovereign Default Premium (2015)
Working Paper: Fiscal rules and the sovereign default premium (2015)
Working Paper: Fiscal rules and the sovereign default premium (2012)
Working Paper: Fiscal Rules and the Sovereign Default Premium (2012)
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DOI: 10.1257/mac.20170479

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