Fiscal space in the euro area before Covid-19
Jerome Creel ()
No 17/2020, Sciences Po publications from Sciences Po
Numerical simulations of fiscal space in the euro area, based on 12 different situations, point to the large uncertainty surrounding the capacity of Member States to pay back their public debts. Debt sustainability appears to depend crucially on long-term nominal interest rate being lower than nominal growth for a long period. Only in this case do major European countries experience some additional fiscal space. Although the analytics behind this exercise is common knowledge among macroeconomists, it gives an order of the magnitude of fiscal space in the euro area and it confirms that interactions between the ECB and governments are key to escape the public finances consequences of an exogenous global shock like Covid-19.
Keywords: Fiscal policy; Public debt; Fiscal deficit; Covid-19 (search for similar items in EconPapers)
JEL-codes: E62 H62 H63 (search for similar items in EconPapers)
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