Fiscal Rules in a Volatile World: A Welfare-Based Approach
March 1, 2011
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Summary
It is widely agreed that a fiscal rule should boost discipline and credibility, reduce macroeconomic volatility, and be easily understood. To support such goals, a government may run structural surpluses and accumulate a precautionary cushion of assets on behalf of agents who do not enjoy access to capital markets. As an additional criterion, that level of assets should be bounded. We provide an example of a structural surplus rule that satisfies all such criteria. In our general equilibrium simulations, we show that such a rule benefits credit-constrained consumers but may hurt others.
Subject: Commodity prices, Consumption, Expenditure, Fiscal rules, Public debt
Keywords: structural surplus, WP
Pages:
42
Volume:
2011
DOI:
Issue:
056
Series:
Working Paper No. 2011/056
Stock No:
WPIEA2011056
ISBN:
9781455221004
ISSN:
1018-5941
