I would like to thank Lory Barile and Antoine Nebout for their research assistance. Ben Friedman and Olivier Blanchard gave useful feedback on an earlier draft. Please address correspondence to: Stefan Collignon, Dirpolis Institute, Sant’ Anna School of Advanced Studies, Piazza Martiri della Liberta 33, Pisa, Toscania, 56127 Italy, Phone: +39 050 883241, Fax: +39 050 883210. E-mail: email@example.com.
FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE*
Version of Record online: 21 MAY 2012
© (2012) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 53, Issue 2, pages 539–567, May 2012
How to Cite
Collignon, S. (2012), FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE. International Economic Review, 53: 539–567. doi: 10.1111/j.1468-2354.2012.00691.x
Manuscript received March, 2008; revised August, 2011.
- Issue online: 21 MAY 2012
- Version of Record online: 21 MAY 2012
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.