From debt arithmetic to fiscal sustainability and fiscal rules: Taking stock and policy lessons

George Economides, Giota Koliousi, Natasha Miaouli and Apostolis Philippopoulos

The Journal of Economic Asymmetries, 2025, vol. 31, issue C

Abstract: We start by clarifying the role of the interest rate-growth rate differential for long-term fiscal sustainability with numerical examples for the Greek economy. In turn, building upon this popular approach, which is based on the intertemporal government budget constraint only, we make a number of methodological points that question the quantitative usefulness of standard calculations. Among other things, we argue that a structural approach is needed and this reveals the necessity of fiscal rules according to which fiscal instruments systematically react to public debt imbalances. This naturally enables us to evaluate the EU’s fiscal rules and to suggest simple and implementable alternatives. Throughout, we confront our arguments with data from the Euro Area.

Keywords: Fiscal policy; Public debt dynamics; Euro area (search for similar items in EconPapers)
JEL-codes: E62 H63 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:joecas:v:31:y:2025:i:c:s1703494924000422

DOI: 10.1016/j.jeca.2024.e00393

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