In this paper, we present a model-based method for identifying fiscal closure rules in stochastic macroeconomic models. The methodology is based on the stability analysis of the model at hand, with an endogenous derivation of a reaction on the part of the fiscal authority to state variables in the model. The rule achieves the dual aim of imposing solvency on the fiscal sector and generating a s...

The present study was aimed to investigate the effects of oil price shocks on discretionary fiscal policies in selected OPEC countries during 1980-2015. In this regard, the heterogeneous dynamic reaction to structural shock was examined using Panel Structural Vector Autoregressive (PSVAR) technique. Based on the findings, the effect of oil price shocks on discretionary fiscal policy was positiv...

ABSTRACT The fiscal reaction function measures how the government’s primary surplus reacts to evolution of public debt. Campos and Cysne (2019b) observed that has been almost steadily decreasing since 2012 it turned from positive negative values in 2017 2018. In subsequent period, improvement some economic indicators led a recovery. Nevertheless, 2020, with advent COVID-19, health spending emer...

Abstract We revisit the relationship between primary balances/GDP and debt/GDP ratios (fiscal reaction function, FRF), in advanced economies, showing that using adequate tests estimators leads to question validity of current consensus. Using data for 1961–2019, we find long-run FRFs exist only a small number economies (Belgium, Germany, Greece, Norway, Portugal Sweden), with polynomial effects ...

We examine the impact of different degrees of fiscal feedback on debt in an economy with nominal rigidities where monetary policy is optimal. We look at the extent to which different degrees of fiscal feedback enhances or detracts from the ability of the monetary authorities to stabilise output and inflation. Using an objective function derived from utility, we find the optimal level of fiscal ...

This paper examines the choice between alternative debt and deficit responses in an overlapping generations (OG) setting. The OG model is a convenient framework for making interest rates sensitive to the supply of public debt and for distinguishing between different types of taxes and transfers. A given deficit-reduction yields a greater reduction of future debt if the policy instrument also re...

Politicians are less likely to breach constitutional fiscal rules than statutory because the of arguably puts them in a more negative spotlight and hampers their re-election prospects. This is one main arguments for explaining why tend be effective correcting political deficit bias vis-à-vis rules. In this paper I isolate reaction public potential from other players, such as opposition, media c...