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Public Debt Frontier. A toolkit for analyzing fiscal policy and debt sustainability

Gonzalo F. de-Córdoba, Benedetto Molinari () and Jose Torres ()
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Gonzalo F. de-Córdoba: University of Malaga, Spain

Working Paper series from Rimini Centre for Economic Analysis

Abstract: This paper provides a twofold contribution. First, it proposes a synthetic and visual indicator to assess public debt sustainability. This indicator summarizes in a single diagram the linkage between economic activity, government’s budget, and the maximum amount of public debt that is sustainable in the long run. The backing theory is a neoclassical growth model augmented with endogenous tax revenues, disaggregated public spending, different production technologies for public and private goods, non-atomistic wage setters in public labor (unions), and a fully specified maturity curve for public bonds. The second contribution of the paper is to develop and present a stand-alone software that analyzes public debt sustainability in response to variations of fiscal policy. This toolkit is useful for managing public debt or to place an additional constraint on government’s budget. We provide an example of its usage for the emblematic case of Greece during the last public debt crisis.

Keywords: Fiscal policy; Public debt sustainability; Endogenous Tax revenues; DSGE model; Debt-dependent government spending; Python (search for similar items in EconPapers)
JEL-codes: E13 H61 E62 H63 H81 H30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pbe
Date: 2018-09
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