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Fiscal Issues in Financial Crisis

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Name of the Asset | Fiscal Issues in Financial Crisis
Type of Asset | Working Paper
Date | December 2011

Summary

This study looks into three dimensions: (i) sustainability in terms of the snowball effect and the level of public debt financial markets are comfortable with, (ii) structural and cyclical balances, and (ii) fiscal risks associated with implicit or contingent fiscal liabilities. It conducts a simple graphical analysis to come up with three policy conclusions. First, fiscal rules for converging economies need to apply the No-Ponzi Game condition in such a way as to take into consideration the level of fiscal deficit that is stabilizing. Second, countercyclical policy should be supported around the stabilizing fiscal deficit and with the view on the targeted level of public debt (which may be different for different countries). Third, the pricing of fiscal risks should be supported by the EU in a coordinated manner with the view to making countercyclical fiscal policy possible without unnecessary costs to growth.

Authors | Vladimir Gligorov
Country and/or Region | Balkans and the EU
Name of the Program | Regional Research Competition
Funder(s) | Jubiläumsfonds of the Austrian National Bank (OeNB) and the Austrian Ministry of Finance

 

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