Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: An Intertemporal Analysis

Merih Uctum and Michael Wickens

No 1612, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: This paper examines the consequences for the sustainability of fiscal policy of imposing restrictive ceilings on deficits and debt. Our theoretical framework is a generalization of the government intertemporal budget constraint which allows for time-varying interest rates, endogenous primary deficits, a finite planning horizon and future policy shifts. We show how published forecasts can be used and we derive a measure of fiscal pressure suitable for the medium term. We find that fiscal policy is not sustainable for most industrialized countries over an infinite horizon, but is sustainable in the medium term in the absence of ceilings. Imposing ceilings, however, generates unsustainability.

Keywords: Fiscal Criteria; Fiscal Policy; Forecasts; Stochastic Discount Rate; Sustainability (search for similar items in EconPapers)
JEL-codes: E6 H6 H87 (search for similar items in EconPapers)
Date: 1997-03
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Debt and Deficit Ceilings, and Sustainability of Fiscal Policies: an Intertemporal Analysis (2000)
Working Paper: Debt and deficit ceilings, and sustainability of fiscal policies: an intertemporal analysis (1996)
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