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Fiscal Sustainability: Interest Rates, Growth and Debt-based Policy Rules

George Economides, Apostolis Philippopoulos
CESifo, Munich, 2023

EconPol Forum 24 (4), 11-15
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  • Calculations based on the intertemporal government budget constraint can be only indicative regarding an economy’s fiscal sustainability
  • Sovereign interest rates, growth rates, as well as primary fiscal balances are all endogenous variables that are jointly determined. This rationalizes the use of structural macroeconomic models for the study of fiscal sustainability
  • In the current situation and in most countries, macroeconomic stability can be guaranteed only if some fiscal policy instruments react systematically to public debt imbalances. This is consistent with the rhetoric in the new economic governance framework communicated by the European Commission
  • Which fiscal policy instrument is being used to bring public debt down is essentially a fiscal policy multiplier problem

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