The Return to Fiscal Rules

Medas, Paulo; Hong, Gee Hee; Nguyen, A. D.; Gonçalves, Carlos Alberto; Yoo, Jiae; Lagerborg, Andresa; Caselli, Francesca; Davoodi, Hamid

doi:10.5089/9798400219467.006

Cited by 15 publications

(9 citation statements)

References 24 publications

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“…We also contribute in this subject by showing that in the short run, when complexity and institutions are more or less fixed, is better to keep track of the interest paid by countries on debt, than to excessively focus on the debt to GDP ratio, which is not even significant to explain the probability of suffering a fiscal crisis. This result is in line with recent claims in the literature that the debt/GDP ratio shows a timevarying and country-dependent effect on borrowing costs, making it difficult to use as an anchor to establish fiscal rules (Furmer and Summers, 2020;Caselli et al, 2022).…”

Section: Introductionsupporting

confidence: 89%

“…This alerts us to the real possibility of overemphasizing the role of debt thresholds in determining episodes of fiscal distress. In line with this result, Caselli et al (2022) calibrate the model of debt sustainability designed by Mian et al (2022), with data before and after the pandemic for different emerging and advanced economies and find that debt-ratios and safe-primary-deficits are likely to vary over time and to be country-dependent. They change according to market conditions, making them very difficult to estimate in practice.…”

Section: Table 2 Estimation Results For the Full Sample Of Countriesmentioning

confidence: 77%

“…Our contribution is timely, since current macroeconomic discussions between policymakers and academics are focusing on fiscal imbalances, fears for the effect that growing public debt balances may have on fiscal and macroeconomic stability, and the effects of higher interest rates on debt burdens in an environment of high and persistent inflation (Caselli et al, 2022).…”

Section: Introductionmentioning

confidence: 99%

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Does economic complexity reduce the probability of a fiscal crisis?

2023

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Section: Introductionsupporting

confidence: 89%

Section: Table 2 Estimation Results For the Full Sample Of Countriesmentioning

confidence: 77%

Section: Introductionmentioning

confidence: 99%

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Does economic complexity reduce the probability of a fiscal crisis?

2023

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“…To listen to some commentary, one would think that the UK government could, with one simple trick, shake off its fiscal shackles and borrow to its the fact that in the face of demographic pressures and geopolitical risks, fiscal policy will need to be tighter in the 'good' times to build up fiscal buffers and provide the space to respond to adverse shocks. Those shocks are coming along with alarming frequency; the IMF has argued that the fiscal buffers needed to manage shocks might be larger than previously thought as a result (Caselli et al, 2022). That is true whether the government is targeting PSND, PSNW or something else.…”

Section: It Does Not Change the Fiscal Fundamentalsmentioning

confidence: 99%

Public sector net worth as a fiscal target

Zaranko

2023

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Key findings1. The government has made a welcome investment in the development of a wider set of measures of the public sector balance sheet. There have been numerous calls for the UK to adapt its fiscal rules to place weight on a particular one of these balance sheet measures, public sector net worth. This is a statistical measure that aims to summarise what the government owns and what it owes: it captures both the government's assets (financial and non-financial) and its liabilities. It attempts to provide a broader and more comprehensive picture of the public finances than commonly used measures of debt and borrowing.2. UK public sector net worth is relatively low by international standards. This is driven by the UK having unusually low levels of public sector assets and unusually high public sector pension liabilities. We should be careful, though, not to equate public sector net worth with the country's net worth, and should not over-read into such comparisons (which partly reflect different boundaries of the state and the precise set of assets and liabilities included). Nonetheless, the UK's position at the back of the international pack is often pointed to by proponents of a public sector net worth target.3. This is a debate worth having. Public sector net worth is a valuable addition to the set of information about the financial position and assets of the government, and to the set of measures estimated by the Office for National Statistics (ONS) and forecast by the Office for Budget Responsibility (OBR). Recent improvements in the 1 The chapter benefited from conversations with and comments from several civil servants, to whom the author is extremely grateful. All errors are the author's own. Public sector net worth as a fiscal target  The Institute for Fiscal Studies, October 2023 2 quality and timeliness of public sector net worth measures have the potential to contribute to better policymaking.4. In particular, there are reasons to suppose that a public sector net worth target might be preferable to a simple target for public sector net debt. Most obviously, by capturing a more comprehensive range of liabilities and assets, it can provide a more complete picture of the impacts of government action (or inaction). This is particularly advantageous when the government is considering asset purchases (such as nationalisations) or asset sales (such as of the student loan book), when a narrow focus on debt can be particularly misleading and/or unhelpful. 5. More generally, a public sector net worth target could helpfully strengthen the incentive for governments to focus on investing in high-quality projects where the value of assets created is expected to exceed the cost of financing, and could provide a framework for holding the government to account when it promises to 'borrow to invest' (often under the implicit assumption that such investments will pay for themselves). It could also encourage decision-makers to think more about how well public sector assets are managed and maintained, and to confront ...

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“…Algunos países están considerando introducir, o ya han introducido, modificaciones para mejorar sus reglas fiscales como consecuencia de la pandemia. Esto presenta una oportunidad para reforzar estos marcos, por ejemplo, adoptando anclas fiscales transparentes, flexibilizando las reglas fiscales para responder a shocks de gran magnitud al tiempo que se encuentra el equilibrio adecuado entre flexibilidad y credibilidad (Caselli et al, 2022), diseñando reglas en función de las evaluaciones de riesgo (incluidos posibles cambios en la capacidad de endeudamiento de los países) y fortaleciendo más las instituciones fiscales.…”

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Perspectivas Económicas, Las Américas, Oct 2023

2023

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The Return to Fiscal Rules

Cited by 15 publications

References 24 publications

Does economic complexity reduce the probability of a fiscal crisis?

Does economic complexity reduce the probability of a fiscal crisis?

Public sector net worth as a fiscal target

Perspectivas Económicas, Las Américas, Oct 2023

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