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Back to Maastricht: Public Debt Sustainability and the Fiscal Multipliers

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  • Matteo Deleidi
  • Nadia Garbellini
  • Gianmarco Oro

Abstract

This essay contributes to the debate on the relevance of fiscal multipliers in the design of economic policies. The need for a different methodological perspective emerges from the results produced in the Eurozone by various fiscal consolidation programs, which, after being implemented following the sovereign debt crisis of 2011 and then suspended to address the COVID-19 crisis, are now being reintroduced according to the balanced budget rules set forth by the Maastricht Treaty. Building on the method elaborated by Pasinetti, we identify the sustainability area of the debt-to-GDP ratio within which different levels of public deficit can be achieved based on the fiscal multiplier. The analysis reveals that, under certain country-specific conditions, imposing limits on public spending can be counterproductive to the sustainability of public debt.

Suggested Citation

  • Matteo Deleidi & Nadia Garbellini & Gianmarco Oro, 2024. "Back to Maastricht: Public Debt Sustainability and the Fiscal Multipliers," International Journal of Political Economy, Taylor & Francis Journals, vol. 53(3), pages 262-271, July.
    • Handle: RePEc:mes:ijpoec:v:53:y:2024:i:3:p:262-271
    DOI: 10.1080/08911916.2024.2391198
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