Assessing Fiscal Sustainability: A Cross-Country Comparison
IMF Working Papers, July 1, 2003
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Bibliographic details
- Authors: Enzo Croce, V. Hugo Juan-Ramon
- Published: July 1, 2003
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451856569.001
Methodology
- Proposes a recursive algorithm derived from the law of motion of the debt-to-GDP ratio.
- Algorithm is subject to a government reaction function that links convergence to the targeted debt ratio with primary fiscal surpluses.
- Estimates are based on quarterly data in the 1990s.
- Empirical application covers 12 developed and developing countries.
Key Findings
- Countries are ranked according to their degree of sustainability using the recursive algorithm and quarterly estimates from the 1990s.
- For a number of countries, the paper finds evidence of causality between the fiscal policy stance and growth-adjusted real interest rates.
- Emphasis on the role of the reaction function and the debt-ratio gap in driving convergence dynamics.
Policy Implications and Analytical Uses
- The reaction-function framework links primary fiscal surpluses to a targeted debt ratio, providing a formal tool to monitor fiscal sustainability.
- The ranking of countries by sustainability can inform comparative assessments of fiscal strategies and fiscal rules.
- Evidence of causality between fiscal stance and growth-adjusted real interest rates highlights interactions policymakers should consider when designing fiscal policy.
Subjects and Keywords
- Subjects: Expenditure, Fiscal policy, Fiscal stance, Fiscal sustainability, Public debt
- Keywords: convergence, debt-ratio gap, Europe, fiscal policy strategy, fiscal rule, Fiscal stance, Fiscal sustainability, ifs algorithm, reaction function, target debt ratio, WP
Source: "Assessing Fiscal Sustainability: A Cross-Country Comparison", Enzo Croce and V. Hugo Juan-Ramon, July 1, 2003 (IMF Working Paper).
Content in this bundle
- Assessing Fiscal Sustainability: A Cross Country Comparison - WP/03/145