Anti-cyclical fiscal policy, debt sustainability and macroeconomic volatility

Pablo Sebastián Fanelli
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Pablo Sebastián Fanelli: Universidad de Buenos Aires

Revista de Economía Política de Buenos Aires, 2011, issue 9-10, 181-225

Abstract: The article analyzes the relationship between anti-cyclical fiscal policy, debt sustainability, and macroeconomic volatility under different fiscal rules. We review the literature and present a set of stochastic simulations for Argentina, Brazil, Chile and Mexico, based on a VAR model. The model includes the terms of trade, as in the case of the Chilean rule. We conclude that the tradeoff between stabilizing public debt and implementing counter-cyclical policies depends critically on the degree of volatility of the macroeconomic context; overlooking this fact may result in explosive debt paths or volatile public borrowing needs.

Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:ake:repba1:y:2011:i:9_10:p:181-225

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