Long-Run Debt Ratios with Fiscal Fatigue
Cambridge Working Papers in Economics
Faculty of Economics
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Robertson, D., & Tambakis, D. (2016). Long-Run Debt Ratios with Fiscal Fatigue. https://doi.org/10.17863/CAM.7829
We investigate the implications of fiscal fatigue � governments� declining ability to increase primary fiscal balances with rising public debt - utilising the cubic policy rule estimated by Ghosh et al. (2013). We characterize its equilibrium debt-output ratios and fiscal space, and analyze its dynamic stability in the deterministic (long-run) case. There may be up to three equilibria, of which the intermediate one will typically require a stability criterion stricter than fiscal solvency. We illustrate numerically for six developed economies.
Debt sustainability, Debt-output ratio, Fiscal policy rules.
This record's DOI: https://doi.org/10.17863/CAM.7829
This record's URL: https://www.repository.cam.ac.uk/handle/1810/262563
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