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Sovereign Debt Risk Premia and Fiscal Policy in Sweden

Huixin Bi () and Eric Leeper ()

No 15810, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper takes a step toward providing a general equilibrium framework within which to study the nub of the current fiscal debate around the world: what are the tradeoffs between short-run stabilization and long-run sustainability when the perceived riskiness of government debt depends, in part, on the current and expected fiscal environment in place? We calibrate a simple model to Swedish fiscal data in two periods: before and after the financial crisis of the early 1990s. We compute the dynamic fiscal limit, which depends on the peak of the Laffer curve, for the pre-crisis and three alternative post-crisis fiscal policies. The model simulates the macroeconomic consequences of alternative policies in the face of the sequence of bad output shocks that Sweden experienced from 1991-1997.

JEL-codes: E6 E62 H2 H5 H6 (search for similar items in EconPapers)
Date: 2010-03
Note: EFG
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Published as “Sovereign Debt Risk Premia and Fiscal Policy in Sweden,” Swedish Economic Policy Review, 2010 (with Huixin Bi)

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