Abstract
We propose a stochastic indicator to assess government debt sustainability.
This indicator combines the effect of economic uncertainty –represented
by stochastic simulations of interest and growth rates– with the expected fiscal
response that provides information on the long-term country specific attitude
towards fiscal sustainability. We apply our framework on post-war data for
nine OECD countries and find that our indicator –the potential increase in
debt in bad states of the world– distinguishes countries that have sustainability
concerns: Italy, Spain, Portugal and Iceland, from those that do not: United
States, United Kingdom, Netherlands, Belgium and Germany.
This indicator combines the effect of economic uncertainty –represented
by stochastic simulations of interest and growth rates– with the expected fiscal
response that provides information on the long-term country specific attitude
towards fiscal sustainability. We apply our framework on post-war data for
nine OECD countries and find that our indicator –the potential increase in
debt in bad states of the world– distinguishes countries that have sustainability
concerns: Italy, Spain, Portugal and Iceland, from those that do not: United
States, United Kingdom, Netherlands, Belgium and Germany.
| Original language | English |
|---|---|
| Pages (from-to) | 229-267 |
| Number of pages | 52 |
| Journal | FinanzArchiv / Public Finance Analysis |
| Volume | 72 |
| Issue number | 3 |
| DOIs | |
| Publication status | Published - 2016 |
Keywords
- public debt
- fiscal policy
- debt sustainability
- stochastic simulations