Optimal Fiscal Rules

14 Pages Posted: 18 Mar 2017

See all articles by David Gomtsyan

David Gomtsyan

ZEW – Leibniz Centre for European Economic Research

Date Written: March 26, 2013

Abstract

This paper studies the welfare effect of restrictions imposed on government debt and deficit. The analysis is conducted in a sovereign default framework with endogenous default decisions. In addition to the conventional exponential discounting preferences the paper also studies a specification, in which agents have self-control problems. The results show that debt ceilings increase welfare for both types of preferences, while deficit restrictions have negative effect for exponential discounting model and positive effect for the model with time-inconsistent preferences.

Keywords: Sovereign Default, Fiscal Rules, Overborrowing, Hyperbolic Discounting

JEL Classification: D91, E32, F34, F41

Suggested Citation

Gomtsyan, David, Optimal Fiscal Rules (March 26, 2013). Available at SSRN: https://ssrn.com/abstract=2934109 or http://dx.doi.org/10.2139/ssrn.2934109

David Gomtsyan (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

L 7, 1
Mannheim, L 7, 1
Germany

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