FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE*

Stefan Collignon

86 citations0/0 files storedInternational Economic Review

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Fiscal Policies and Political Economy Global Financial Crisis and Policies European Monetary and Fiscal Policies

Abstract

The sustainability of public debt is interpreted as the result of the interaction of fiscal policy with the economic environment, and not as a statistical concept as in most of the recent literature. If debt is not to explode over time, policymakers have to respond to the changing conditions in the macroeconomic environment. This article defines the conditions that will ensure compliance of fiscal policy with the intertemporal budget constraint in the context of Europe's fiscal policy rules. The empirical part of the article reveals that European public debt is sustainable in this respect, but questions regarding long‐run liquidity requirements remain unresolved.

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References

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