Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/152829 
Year of Publication: 
2004
Series/Report no.: 
ECB Working Paper No. 395
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper investigates fiscal sustainability in an overlapping generations economy with endogenous growth coming from human capital formation through educational spending. We assess how budgetary imbalances affect economic dynamics and the outlook for economic growth, thereby providing a rationale for fiscal rules ensuring sustainability. Our results show that the appropriate response of fiscal policy to temporary shocks is not trivial in the absence of fiscal rules. Fiscal rules allow for a timely reaction, thereby avoiding possibly disruptive fiscal adjustment in the future: the more adjustment is delayed, the larger is its necessary scale. We perform a rough calibration of the model to simulate the effects of a demographic shock (change in the population growth rate) under different fiscal policy scenarios.
Subjects: 
Fiscal sustainability
overlapping generations
public debt
JEL: 
E62
H63
H55
O41
E17
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.