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Fiscal policy rules in a model of growth and distribution

Grant number: 16/20245-6
Support type:Scholarships in Brazil - Post-Doctorate
Effective date (Start): January 01, 2017
Effective date (End): October 31, 2017
Field of knowledge:Applied Social Sciences - Economics - Fiscal and Monetary Policies
Cooperation agreement: Coordination of Improvement of Higher Education Personnel (CAPES)
Principal researcher:Gilberto Tadeu Lima
Grantee:Rafael Saulo Marques Ribeiro
Home Institution: Faculdade de Economia, Administração e Contabilidade (FEA). Universidade de São Paulo (USP). São Paulo , SP, Brazil

Abstract

This work aims to explore some aspects of the debate on setting an expenditure ceiling and the impact of such a policy on public debt sustainability from a more general theoretical framework in models of growth and distribution. We seek to demonstrate that a fiscal rule that merely sets an expenditure ceiling, excluding interest payments, may not be enough to ensure a non-explosive trajectory of the debt-GDP ratio over time. Having said that, we then suggest that a fiscal policy rule that takes into account not only an expenditure ceiling but also the activity level of the economy and that excludes public investment from the ceiling can be more effective with respect to the objective of stabilising the public debt. It is also argued that the Central Bank should take into account the expenditure ceiling set by the fiscal authority in its reaction function while managing monetary policy, thus ensuring greater stability to the system. Finally, we analyse the possibilities for empirical tests in order to assess whether the adoption of an expenditure ceiling by developing countries has been sufficient to ensure long-term debt sustainability. (AU)

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Scientific publications
(References retrieved automatically from Web of Science and SciELO through information on FAPESP grants and their corresponding numbers as mentioned in the publications by the authors)
RIBEIRO, RAFAEL S. M.; LIMA, GILBERTO TADEU. Government expenditure ceiling and public debt dynamics in a demand-led macromodel. JOURNAL OF POST KEYNESIAN ECONOMICS, v. 42, n. 3, p. 363-389, JUL 3 2019. Web of Science Citations: 0.

Please report errors in scientific publications list by writing to: cdi@fapesp.br.