The perils of fiscal feedback rules

• 成果类型: Article
• 署名作者: Menuet, Maxime; Minea, Alexandru; Villieu, Patrick
• 署名单位: Centre National de la Recherche Scientifique (CNRS); Universite Cote d'Azur; IPAG Business School; University of Bucharest; Carleton University; Universite de Orleans
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2024.105857
• 发表日期: 2024
• 关键词: Fiscal feedback rules; sterilization; Economic growth; public debt; Debt cycles

摘要

This paper introduces a fiscal feedback rule (FFR) in an endogenous growth model with public debt dynamics. We assume that part of the debt burden is covered by tax increases (we name this sterilization), while the remaining part is financed by issuing new debt. We show that while low sterilization does not ensure the existence of a long -run steady state, high sterilization can lead to multiple steady states and aggregate instability in the form of local and global indeterminacy, potentially condemning the economy to a low-growth/high-debt trap steady state and long-lasting public debt cycles. By combining econometric estimations and a calibration exercise on developed economies, we highlight that these various perils can occur for empirically plausible values of the sterilization coefficient.