Numerical Fiscal Rules for Economic Unions: the Role of Sovereign Spreads

Author/Editor:

Juan Carlos Hatchondo ; Leonardo Martinez ; Francisco Roch

Publication Date:

July 23, 2021

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

We study gains from introducing a common numerical fiscal rule in a “Union” of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union.

Series:

Working Paper No. 2021/196

Frequency:

regular

English

Publication Date:

July 23, 2021

ISBN/ISSN:

9781513584645/1018-5941

Stock No:

WPIEA2021196

Pages:

16

Please address any questions about this title to publications@imf.org