EconPapers    
Economics at your fingertips  
 

The Perils of Fiscal Rules

Maxime Menuet (), Alexandru Minea () and Patrick Villieu ()
Additional contact information
Maxime Menuet: CERDI - Centre d'Études et de Recherches sur le Développement International - UdA - Université d'Auvergne - Clermont-Ferrand I - CNRS - Centre National de la Recherche Scientifique

Working Papers from HAL

Abstract: This paper develops a limit-cycle-based theory of debt fluctuations through a simple endogenous growth model. Public debt and deficit are introduced by relaxing the balanced-budget rule hypothesis, and assuming a simple fiscal rule. Our main result is that fiscal rules can be destabilizing, leading to (i) multiple equilibria-four balanced-growth paths can emerge-, (ii) endogenous public debt cycles, which appear both in the short and the long run, and (iii) hysteresis phenomena arising from extreme sensitivity of changes in parameters. We also reveal that a balanced-budget rule does not preclude large aggregate fluctuations. Finally, our calibration exercise highlights that our model produces asymmetric cycles consistent with observed stylized facts.

Keywords: Fiscal rules; Indeterminacy; Limit cycle; Public Debt; Bifurcation (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2019-09-18
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-02291307
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-02291307/document (application/pdf)

Related works:
Working Paper: The Peril of Fiscal Rules (2019)
Working Paper: The Perils of Fiscal Rules (2019) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-02291307

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2019-12-03
Handle: RePEc:hal:wpaper:hal-02291307