Evaluating Fiscal Policy: A Rule of Thumb

Abstract:
This paper introduces a simple rule for appraising the economic soundness of fiscal policies. It connects fiscal policy to a long-run debt objective, taken as an anchor, while arbitraging symmetrically between this debt objective and output stabilisation. The rule offers a benchmark to assess the evolution of primary expenditure, net of the impact of discretionary revenue measures, taken as a proper operational target for annual fiscal policy. The properties and implications of this rule of thumb are analysed drawing on qualitative arguments and retrospective simulations.

European Commission: DG Economic and Financial Affairs:European Economy: Economic Papers No.526, August 2014:Evaluating Fiscal Policy: A Rule of Thumb http://ec.europa.eu/economy_finance/publications/economic_paper/2014/ecp526_en.htm

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