Anti-cyclical fiscal policy, debt sustainability and macroeconomic volatility

Andrés Martín Civetta, Lucía Mercedes Mauro and Franco Manzo
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Andrés Martín Civetta: Universidad de Buenos Aires, Facultad de Ciencias Económicas, IIEP, CONICET
Lucía Mercedes Mauro: Universidad de Buenos Aires, Facultad de Ciencias Económicas, IIEP, CONICET
Franco Manzo: Universidad de Buenos Aires, Facultad de Ciencias Económicas, IIEP, CONICET

Revista de Economía Política de Buenos Aires, 2023, issue 27, 105-142

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.

JEL-codes: L62 O33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ake:repba1:y:2023:i:27:p:105-142

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