EconPapers    
Economics at your fingertips  
 

On Fixed and Variable Fiscal Surplus Rules

Erdem Basci, Mehmet Ekinci and Murat Yulek

Macroeconomics from University Library of Munich, Germany

Abstract: Fiscal rules are being increasingly used by both emerging and developed economies. This paper analyzes two alternative fiscal policy rules in terms of their impact on debt sustainability: a rule that fixes the ratio of primary surplus to GDP (“fixed surplus rule”) and one that sets the primary surplus as a linear function of debt to GDP ratio (“variable surplus rule”). A simple debt dynamics equation, incorporating real shocks, is constructed, and the probability of exceeding the critical debt level is simulated using Monte Carlo techniques. The results show that the variable surplus rule performs better than the simple fixed surplus rule, by reducing debt sustainability concerns and the necessary medium-term primary surplus. This result hinges on the government’s ability to make a credible commitment to the variable surplus rule in the medium run.

Keywords: Debt dynamics; Monte-Carlo simulation; fiscal policy rules; debt sustainability (search for similar items in EconPapers)
JEL-codes: E (search for similar items in EconPapers)
Pages: 14 pages
Date: 2004-09-06
Note: Type of Document - pdf; pages: 14
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0409/0409006.pdf (application/pdf)

Related works:
Journal Article: On Fixed and Variable Fiscal Surplus Rules (2007) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpma:0409006

Access Statistics for this paper

More papers in Macroeconomics from University Library of Munich, Germany
Bibliographic data for series maintained by EconWPA ().

 
Page updated 2024-12-29
Handle: RePEc:wpa:wuwpma:0409006