The Perils of Fiscal Rules - Archive ouverte HAL
Pré-Publication, Document De Travail Année : 2021

The Perils of Fiscal Rules

Résumé

This paper develops a limit-cycle-based theory of debt fluctuations through a simple endogenous growth model. Public debt and deficit are introduced by relaxing the balanced-budget rule hypothesis, and assuming a simple fiscal rule. Our main result is that fiscal rules can be destabilizing, leading to (i) multiple equilibria-four balanced-growth paths can emerge-, (ii) endogenous public debt cycles, which appear both in the short and the long run, and (iii) hysteresis phenomena arising from extreme sensitivity of changes in parameters. We also reveal that a balanced-budget rule does not preclude large aggregate fluctuations. Finally, our calibration exercise highlights that our model produces asymmetric cycles consistent with observed stylized facts.
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Dates et versions

hal-02291307 , version 1 (18-09-2019)
hal-02291307 , version 2 (19-10-2021)

Identifiants

  • HAL Id : hal-02291307 , version 2

Citer

Maxime Menuet, Alexandru Minea, Patrick Villieu. The Perils of Fiscal Rules. 2021. ⟨hal-02291307v2⟩
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