Indicators of Fiscal Sustainability

IMF Working Papers, January 1, 1991

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Indicators of Fiscal Sustainability

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Bibliographic details

• Authors: Jocelyn Horne
• Published: January 1, 1991
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781451842081.001

Overview and purpose

• Assesses the usefulness of summary measures of fiscal sustainability for the purpose of multilateral surveillance.
• Presents an overview of the main conceptual issues underlying fiscal sustainability measurement.
• Evaluates strengths and weaknesses of summary measures in the context of their recent application to industrial countries by the OECD and the Fund.

Key findings

• Summary measures highlight the inadequacy of using trends in public debt ratios alone to assess sustainability.
• The measures are subject to a number of important caveats that limit their reliability and interpretation.

Major caveats and sensitivities

• Sensitivity to the discount rate.
• Sensitivity to time paths of government expenditures.
• Sensitivity to private sector behavior.
• Implication: conclusions based solely on summary measures or debt-ratio trends can be misleading without careful attention to underlying assumptions.

Conceptual issues emphasized

• Importance of present discounted value approaches and government budget constraints.
• Relevance of real interest rates and the public debt-to-GDP ratio for assessing fiscal sustainability.
• Consideration of debt stabilization and risks such as debt repudiation.

Context of application

• Recent applications analyzed: OECD and IMF assessments of industrial countries.
• The paper demonstrates how different assumptions and methodologies can materially affect sustainability indicators and policy inferences.

Subjects and keywords

• Subjects: Expenditure, Financial services, Fiscal policy, Fiscal sustainability, Public debt, Real interest rates
• Keywords: budget constraint, debt repudiation, debt stabilization, fiscal policy sustainability, Fiscal sustainability, GDP, Global, government solvency, present discounted value, public debt-to-GDP ratio, Real interest rates, stock ratio, WP

IMF Working Paper: "Indicators of Fiscal Sustainability" by Jocelyn Horne, Working Paper No. 1991/005 (January 1, 1991).