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Long-Run Debt Ratios with Fiscal Fatigue

Donald Robertson and Demosthenes Tambakis ()

Cambridge Working Papers in Economics from Faculty of Economics, University of Cambridge

Abstract: 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)
Date: 2016-12-09
New Economics Papers: this item is included in nep-mac
Note: dr10011
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Persistent link: https://EconPapers.repec.org/RePEc:cam:camdae:1674

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