Long-Run Debt Ratios with Fiscal Fatigue
Donald Robertson and
Demosthenes Tambakis ()
Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge
We investigate the implications of fiscal fatigue – governments’ declining ability to increase primary fiscal balances with rising public debt - utilising the cubic policy rule estimated by Ghosh et al. (2013). We characterize its equilibrium debt-output ratios and fiscal space, and analyze its dynamic stability in the deterministic (long-run) case. There may be up to three equilibria, of which the intermediate one will typically require a stability criterion stricter than fiscal solvency. We illustrate numerically for six developed economies.
Keywords: Debt sustainability; Debt-output ratio; Fiscal policy rules. (search for similar items in EconPapers)
JEL-codes: E6 H0 H6 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1674
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