Working Paper
Modelling the Fiscal Reaction Functions of the GIPS Based on State-Varying Thresholds
Gabriella Deborah Legrenzi, Costas Milas
CESifo, Munich, 2013
CESifo Working Paper No. 4385
CESifo, Munich, 2013
CESifo Working Paper No. 4385
We extend previous literature on fiscal policy sustainability by introducing non-linear fiscal reaction functions with endogenously estimated state-varying thresholds to capture the behaviour of fiscal policy authorities during “good” and “bad” times. These thresholds vary with the level of debt, the economic cycle and an index of financial pressure.
CESifo Category
Public Finance
Fiscal Policy, Macroeconomics and Growth
Public Finance
Fiscal Policy, Macroeconomics and Growth
Keywords: debt sustainability, fiscal reaction function, state-varying threshold
JEL Classification: C200, H300, H500