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FISCAL POLICY RULES AND THE SUSTAINABILITY OF PUBLIC DEBT IN EUROPE *
Author(s) -
Collig Stefan
Publication year - 2012
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2012.00691.x
Subject(s) - debt , fiscal policy , economics , fiscal sustainability , context (archaeology) , budget constraint , constraint (computer aided design) , sustainability , macroeconomics , fiscal union , budgetary policy , liquidity constraint , deficit spending , market liquidity , economic policy , public economics , microeconomics , mechanical engineering , paleontology , ecology , engineering , biology
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.