Keynesian and Neoclassical Fiscal Sustainability Indicators, with Applications to Emu Member Countries

31 Pages Posted: 17 Nov 2004

See all articles by Alberto Bagnai

Alberto Bagnai

University "Gabriele D'Annunzio"

Date Written: November 2004

Abstract

The purposes of this paper are twofold: first, it aims at critically evaluating the solvency criterion, pioneered by Hamilton and Flavin (1986), which is nowadays almost hegemonic in the analysis of public debt sustainability, and at illustrating alternative measures of sustainability grounded on the dynamic stability approach originated by Domar (1944); secondly, it looks at sustainability in EMU member countries, with particular attention given to the relations between sustainability and the design of fiscal rules. The results show that the 3% rule imposed by the Maastricht treaty can be justified as a sustainability requirement for an average EMU member country. At the same time, the dispersion around this average is quite substantial: this questions the viability of uniform deficit caps across EMU member countries.

Keywords: Public debt sustainability, dynamic analysis, solvency constraint, EMU, fiscal rules

JEL Classification: E62, H63

Suggested Citation

Bagnai, Alberto, Keynesian and Neoclassical Fiscal Sustainability Indicators, with Applications to Emu Member Countries (November 2004). Available at SSRN: https://ssrn.com/abstract=620042 or http://dx.doi.org/10.2139/ssrn.620042

Alberto Bagnai (Contact Author)

University "Gabriele D'Annunzio" ( email )

viale Pindaro, 42
Pescara, PE I-65127
Italy

HOME PAGE: http://bagnai.org

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