Fiscal rules and sustainability of public finances in an endogenous growth model

Arbeitspapier

This paper presents a two period overlapping generations model with endogenous growth in the presence of a public sector with objectives of convergence for public debt and primary balance to GDP ratios. In order to ensure the existence of converging paths towards the target values of fiscal variables, we introduce a simple fiscal policy rule. According to this rule, the primary balance ratio is adjusted in function of the distance between the current and the target levels of the public debt and the primary surplus to GDP ratios. It is shown that the fiscal rule displaying time invariant parameters may produce non linear dynamic processes of adjustment of the fiscal ratios as well as endogenous fluctuations in the rate of growth of the economy. In addition the transitional process towards fiscal targets critically depends on the adjustment tool chosen by the fiscal authorities to implement the rule.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 381

Classification and Topics

• Classification: Wirtschaft ; National Debt; Debt Management; Sovereign Debt ; National Deficit; Surplus ; One, Two, and Multisector Growth Models
• Subject: endogenous growth ; Fiscal Policy ; sustainability of public finances

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Annicchiarico, Barbara ; Giammarioli, Nicola
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2004

Further information

• Handle: http://hdl.handle.net/10419/152815
• Last update: 10.03.2025, 11:43 AM CET