The Sustainability of Fiscal Policy: New Answers to an Old Question

Abstract

The early 1980s were a time of large budget deficits and increasing ratios of government debt to GNP for many of the OECD countries (Table 1), prompting concerns that the fiscal policies which led to such outcomes were not only unwise, but also unsustainable. Assessing wisdom is not easy, however, and surely not an exercise which can or should be reduced to the construction and examination of a few indicators. Assessing sustainability, on the other hand, is a much less ambitious task and one for which indicators are well suited. The purpose of this paper is to derive, construct and examine the behaviour of such indicators for the recent past and for the present.

JEL Classification: 02, 13