Measuring the Fiscal Stance

Vito Polito and Michael Wickens

Discussion Papers from Department of Economics, University of York

Abstract: In this paper we propose an index of the fiscal stance suitable for practical use in short-term policy making. The index is based on a comparison of a target level of the debt-GDP ratio for a given finite horizon with a forecast of the debt-GDP ratio based on a VAR formed from the government budget constraint. This approach to measuring the fiscal stance is different from the literature on fiscal sustainability. We emphasise the importance of having a forward-looking measure of the fiscal stance for the immediate future rather than a test for fiscal sustainability that is backward-looking, or based just on past behaviour which may not be closely related to the current fiscal position. We use our methodology to construct a time series of the indices of the fiscal stances of the US, the UK and Germany over the last 25 or more years. We find that both the US and UK fiscal stances have deteriorated considerably since 2000 and Germany's has been steadily deteriorating since unification in 1989, and worsened again on joining EMU.

Keywords: Budget deficits; government debt; fiscal sustainability; VAR analysis (search for similar items in EconPapers)
JEL-codes: C22 C53 E62 E63 (search for similar items in EconPapers)
Date: 2007-06
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.york.ac.uk/media/economics/documents/discussionpapers/2007/0714.pdf Main text (application/pdf)

Related works:
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:yor:yorken:07/14

Access Statistics for this paper

More papers in Discussion Papers from Department of Economics, University of York Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom. Contact information at EDIRC.
Bibliographic data for series maintained by Paul Hodgson ().