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

George Economides, Giota Koliousi, Natasha Miaouli and Apostolis Philippopoulos

GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe from Hellenic Observatory, LSE

Abstract: We start by clarifying the role of the interest rate-growth rate differential in debt arithmetic with numerical examples for the Greek economy. In turn, building upon this popular approach to fiscal sustainability, 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: 2024-03
New Economics Papers: this item is included in nep-eec
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Citations: View citations in EconPapers (3)

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Working Paper: From debt arithmetic to fiscal sustainability and fiscal rules: taking stock and policy lessons (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hel:greese:194

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