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Primary surplus and debt projections based on estimated fiscal reaction functions for euro area countries

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  • Plödt, Martin
  • Reicher, Claire

Abstract

We project the path of the public debt and primary surpluses for a number of countries in the euro area under a fiscal rule based on a set of estimated fiscal policy reaction functions. Our fiscal rule represents a fiscal analogue to a well-known monetary policy rule, and it is calibrated using country-specific as well as euro area-wide parameter estimates. We then forecast the dynamics of the fiscal aggregates under different convergence, growth, and interest rate scenarios and investigate the implications of these scenarios in projecting the future path of fiscal aggregates. We argue that our forecasting methodology may be used to deliver insights into the medium-run effects of different fiscal policy rules and to provide some early warning of future fiscal pressures.

Suggested Citation

  • Plödt, Martin & Reicher, Claire, 2014. "Primary surplus and debt projections based on estimated fiscal reaction functions for euro area countries," Kiel Working Papers 1900, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1900
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    References listed on IDEAS

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    1. Snower, Dennis J. & Burmeister, Johannes & Seidel, Moritz, 2011. "Dealing with the eurozone debt crisis: A proposal for reform," Kiel Policy Brief 33, Kiel Institute for the World Economy (IfW Kiel).
    2. Sebastian Barnes & Jarmila Botev & Lukasz Rawdanowicz & Jan Stráský, 2016. "Europe’s New Fiscal Rules," Review of Economics and Institutions, Università di Perugia, vol. 7(1).
    3. Afonso, António & Hauptmeier, Sebastian, 2009. "Fiscal behaviour in the European Union: rules, fiscal decentralization and government indebtedness," Working Paper Series 1054, European Central Bank.
    4. Nathalie Girouard & Christophe André, 2005. "Measuring Cyclically-adjusted Budget Balances for OECD Countries," OECD Economics Department Working Papers 434, OECD Publishing.
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    More about this item

    Keywords

    fiscal rules; fiscal policy; euro area; forecasting;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt

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