IMF Working Papers

A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance

By Jean-Marc Fournier, Philipp Lieberknecht

February 14, 2020

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Jean-Marc Fournier, and Philipp Lieberknecht. A Model-based Fiscal Taylor Rule and a Toolkit to Assess the Fiscal Stance, (USA: International Monetary Fund, 2020) accessed September 19, 2024

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Summary

This paper presents a model-based fiscal Taylor rule and a toolkit to assess the fiscal stance, defined as the change in the structural primary balance. This is built on the normative buffer-stock model of the government (Fournier, 2019) which includes key channels like hysteresis, cycle-dependent multipliers and a risk premium. A simple fiscal Taylor rule prescribes the fiscal stance as a function of past government debt, past output gap and the past structural primary balance. Applications suggest several advanced economies could have better managed their fiscal stance over the last 20 years. Simulations provide fiscal stance recommendations over the medium-term.

Subject: Fiscal multipliers, Fiscal policy, Fiscal rules, Fiscal stance, National accounts, Output gap, Production, Return on investment

Keywords: Economic stabilization, Fiscal multipliers, Fiscal policy, Fiscal rules, Fiscal stance, France government, Global, Government balance, Government behavior, Government budget constraint, Government debt, Government decision, Government need, Government objective function, Government's choice, Objective function, Optimizing government, Output gap, Output gap threshold, Output gap trajectory, Output gap uncertainty, Public debt, Return on investment, Utility function, WP

Publication Details

  • Pages:

    36

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

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  • Series:

    Working Paper No. 2020/033

  • Stock No:

    WPIEA2020033

  • ISBN:

    9781513529240

  • ISSN:

    1018-5941