A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance

Jean-Marc Fournier and Philipp Lieberknecht

No 2020/033, IMF Working Papers from International Monetary Fund

Abstract: This paper presents a model-based fiscal Taylor rule and a toolkit to assess the fiscal stance, defined as the change in the structural primary balance. This is built on the normative buffer-stock model of the government (Fournier, 2019) which includes key channels like hysteresis, cycle-dependent multipliers and a risk premium. A simple fiscal Taylor rule prescribes the fiscal stance as a function of past government debt, past output gap and the past structural primary balance. Applications suggest several advanced economies could have better managed their fiscal stance over the last 20 years. Simulations provide fiscal stance recommendations over the medium-term.

Keywords: WP; objective function; utility function; fiscal policy; fiscal stance; economic stabilization; public debt; government debt; output gap uncertainty; government behavior; government decision; government objective function; output gap threshold; optimizing government; government balance; output gap trajectory; government need; Output gap; Fiscal multipliers; Fiscal rules; Return on investment; Global; France government; government's choice; government budget constraint (search for similar items in EconPapers)
Pages: 36
Date: 2020-02-14
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (2)

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