On Fixed and Variable Fiscal Surplus Rules

Basci, Erdem; Ekinci, FAtih; Yulek, Murat
May 2007
Emerging Markets Finance & Trade;May/Jun2007, Vol. 43 Issue 3, p5
Academic Journal
Both emerging and developed economies increasingly use fiscal rules. This paper analyzes the effects of two alternative fiscal rules on debt sustainability. The fixed surplus rule fixes the ratio of primary surplus to gross domestic product (GDP), and the variable surplus rule sets the primary surplus as a linear function of the debt-to-GDP ratio. A simple debt dynamics equation is constructed that incorporates real shocks, and the probability of exceeding the critical debt level is simulated using Monte Carlo techniques. The results show that the variable surplus rule performs better than does the simple fixed surplus rule by reducing debt sustainability concerns and the necessary medium-term primary surplus. This result hinges on government ability to commit credibly to the variable surplus rule in the medium run.


Related Articles

  • Sinopsis de la obra en idioma inglés.  // Cuadernos de Investigacion Nueva Epoca;dic1988, Issue 29, preceding p1 

    This paper analyzes the way in which Barbados, Jamaica and Trinidad and Tobago neutralized the changes in international reserves due to different external shocks from 1969 to 1986. The economies of Trinidad and Barbados, which different external conditions, were found to be able to neutralize...

  • Policy mix and debt sustainability: evidence from fiscal policy rules. Claeys, Peter // Empirica;Jun2006, Vol. 33 Issue 2/3, p89 

    This paper characterizes rules-based fiscal policy setting for G-3 and large EMS countries. We set up a simple fiscal policy rule and then infer on the policymakers’ reaction coefficients by testing with GMM. Our results qualify existing evidence on systematic fiscal policy in two...

  • What Triggers Inflation in Emerging Market Economies? Domaç, Ilker; Yücel, Eray M. // Review of World Economics;Apr2005, Vol. 141 Issue 1, p141 

    This study aims at investigating the factors associated with the start of 24 inflation episodes in 15 emerging market economies (EMEs) between 1980 and 2001. The paper employs pooled probit analysis to estimate the contribution of the key factors to inflation starts. The empirical results...

  • Some Implications of Endogenous Stabilization Policy. Goldfeld, Stephen M.; Blinder, Alan S. // Brookings Papers on Economic Activity;1972, Issue 3, p585 

    The article examines econometric approaches to monetary and fiscal considerations of an economic stabilization policy. The idea that the typical stabilization policy variables should perhaps be treated as endogenous in econometric studies raises a host of issues for the estimation and use of...

  • KAMU BORÇ STOKUNUN AZALTILMASINDA MALÄ°YE POLÄ°TÄ°KALARININ ROLÃœ. Göker, Zeiha // Akdeniz University Faculty of Economics & Administrative Science;kas2005, Vol. 5 Issue 10, p163 

    In this paper expansionary fiscal contractions and their role in reducing the public debt ratio are examined. The important determinants of the success of fiscal contractions are specied by the composition, size and persistence of fiscal adjustments, the expectations and the initial level of...

  • FISCAL POLICY IN GOOD TIMES AND BAD. Perotti, Roberto // Quarterly Journal of Economics;Nov99, Vol. 114 Issue 4, p1399 

    In the 1980s several countries with large government debt or deficit implemented substantial, and in some cases drastic, deficit cuts. Contrary to widespread expectations, in many cases private consumption boomed rather than contracted. This paper shows that in times of "fiscal stress" shocks to...

  • FISCAL POLICY WITH NONCONTINGENT DEBT AND THE OPTIMAL MATURITY STRUCTURE. Angeletos, George-Marios // Quarterly Journal of Economics;Aug2002, Vol. 117 Issue 3, p1105 

    How should the tax rate and the level of public debt adjust to an adverse fiscal shock? What is the optimal maturity structure of public debt? If the maturity structure is carefully chosen, the ex post variation in the market value of public debt can cover the government against the need to...

  • The Sustainability of Government Deficits: Implications of the Present-Value Borrowing Constraint. WILCOX, DAVID W. // Journal of Money, Credit & Banking (Ohio State University Press);Aug89, Vol. 21 Issue 3, p291 

    The article examines the relation between the value of borrowing constraint to the sustainability of government deficits. The recent structure of fiscal policy in the U.S. does not appear to have been sustainable. The author details a test introduced to distinguish sustainable policies from...

  • Fiscal Stimulus and Credibility in Emerging Countries. Kandil, Magda; Morsy, Hanan // Eastern Economic Journal;Summer2014, Vol. 40 Issue 3, p420 

    Across a sample of 34 emerging countries, the evidence shows the frequent existence of a pro-cyclical fiscal impulse. However, the scope for counter-cyclical policy increases with the availability of international reserves, as it enhances credibility and mitigates concerns about the effect of...


Read the Article


Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics