FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE*
Фискальные правила и устойчивость государственного долга в Европе
2012-05-01
SCID: 54.1/k67b69qa
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fiscal policy rulesintertemporal budget constraintlong-run liquiditymacroeconomic environmentpublic debt sustainability
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Abstract (AI)
The sustainability of public debt is interpreted as the result of the interaction of fiscal policy with the economic environment, and not as a statistical concept as in most of the recent literature. If debt is not to explode over time, policymakers have to respond to the changing conditions in the macroeconomic environment. This article defines the conditions that will ensure compliance of fiscal policy with the intertemporal budget constraint in the context of Europe's fiscal policy rules. The empirical part of the article reveals that European public debt is sustainable in this respect, but questions regarding long‐run liquidity requirements remain unresolved.
Key Findings
1
Empirical evidence indicates that European public debt is sustainable under these fiscal policy conditions.
2
Fiscal policymakers must adjust their responses to changing macroeconomic conditions to prevent public debt from exploding over time.
3
Long-run liquidity requirements for European public debt remain unresolved despite evidence of sustainability.
4
Public debt sustainability is framed as the interaction between fiscal policy and the macroeconomic environment, rather than as a purely statistical property.
5
The article identifies conditions under which European fiscal policy rules comply with the intertemporal budget constraint.
Research Object
European public debt under fiscal policy rules
Research Subject
Debt sustainability as the interaction of fiscal policy with the macroeconomic environment, including compliance with the intertemporal budget constraint and long-run liquidity requirements
Publication Details
Publication Date
2012-05-01
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