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How Uncertain Are Long‐Run Fiscal Projections? Non‐Parametric Stochastic Modelling for New Zealand
Author(s) -
Ball Christopher,
Creedy John,
Scobie Grant
Publication year - 2016
Publication title -
australian economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.308
H-Index - 29
eISSN - 1467-8462
pISSN - 0004-9018
DOI - 10.1111/1467-8462.12140
Subject(s) - productivity , economics , parametric statistics , projection (relational algebra) , econometrics , per capita , fiscal policy , projections of population growth , debt , range (aeronautics) , stochastic modelling , population , macroeconomics , population growth , mathematics , statistics , finance , engineering , demography , algorithm , sociology , aerospace engineering
This article introduces uncertainty into a fiscal projection model which incorporates population ageing along with a number of feedback effects. A new non‐parametric method of producing stochastic projections is explored. This allows for the complex nature of the observed joint distributions of relevant variables and their time paths. Stochastic projections of a range of policy responses are produced, allowing for uncertainty regarding the world interest rate, productivity growth and the growth rates of two components of per capita government expenditure. The probability of exceeding a given debt ratio in each projection year, using a particular tax or expenditure policy, can then be evaluated. Examples of tax policies designed to achieve a target debt ratio are examined. Policy implications are briefly discussed.