Fiscal Rules in a Volatile World: A Welfare-Based Approach

Author/Editor:

Jorge Restrepo ; Carlos Garcia ; Evan C Tanner

Publication Date:

March 1, 2011

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

It is widely agreed that a fiscal rule should boost discipline and credibility, reduce macroeconomic volatility, and be easily understood. To support such goals, a government may run structural surpluses and accumulate a precautionary cushion of assets on behalf of agents who do not enjoy access to capital markets. As an additional criterion, that level of assets should be bounded. We provide an example of a structural surplus rule that satisfies all such criteria. In our general equilibrium simulations, we show that such a rule benefits credit-constrained consumers but may hurt others.

Series:

Working Paper No. 2011/056

Subject:

Commodity prices Consumption Expenditure Fiscal rules Public debt

English

Publication Date:

March 1, 2011

ISBN/ISSN:

9781455221004/1018-5941

Stock No:

WPIEA2011056

Pages:

42

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