Department of Economics and Business Economics

Fiscal sustainability and fiscal policy targets

Research output: Working paperResearch

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  • Wp12 15

    Submitted manuscript, 867 KB, PDF document

Analyses of fiscal sustainability have become integral parts of fiscal policy planning due to high debt levels and projected demographic changes. A popular metric by which to evaluate sustainability gaps is the so-called S2 metric given as the permanent change in the primary budget balance (relative to GDP) needed to meet the intertemporal budget constraint. While a very useful metric it also suffers from some problems, and the paper discusses some of the problems with this metric as a way to assess fiscal sustainability problems. A particular important issue is the extent to which the S2 indicator can be given a normative interpretation, and this issue is extensively discussed. The paper ends by discussing the formulation of fiscal policy targets to ensure fiscal sustainability.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages30
Publication statusPublished - 5 Jul 2012
SeriesEconomics Working Papers
Number2012-15

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