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The Evolution of Fiscal Policy and Public Debt Dynamics: The Case of Sweden

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Listed:
  • Anna Staszewska-Bystrova
  • Victor Bystrov

Abstract

The aim of the paper is to evaluate the long-run sustainability of fiscal policy in Sweden using a time-varying fiscal reaction function. Sufficient sustainability conditions are discussed, and it is demonstrated that fiscal sustainability is consistent with various types of transient fiscal policy and temporary debt expansions. The fiscal response to the debt-to-income ratio is estimated recursively using constant gain least squares. The evolution of fiscal policy in Sweden is evaluated over the period from 1850 to 2014. It is demonstrated that a sustainable fiscal policy can be an outcome of a long-run process of learning. In this process, fiscal authorities are forced to adapt their policies to changes in the economic and political environment. It is concluded that fiscal sustainability should be judged by the eventual ability of fiscal authorities to stabilise debt rather than by transient debt dynamics.

Suggested Citation

  • Anna Staszewska-Bystrova & Victor Bystrov, 2022. "The Evolution of Fiscal Policy and Public Debt Dynamics: The Case of Sweden," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 3, pages 67-83.
    • Handle: RePEc:sgh:gosnar:y:2022:i:3:p:67-83
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    sustainability; recursive identification; fiscal reaction function;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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