Introduction The first step in a rules based approach to fiscal policy is setting a target for debt. In this literature economists provide evidence for both positive and negative impacts of debt on economic activity. This evidence is used in
John Merrifield and Barry Poulson The Great Recession and slower economic growth in recent years have been accompanied by a discontinuous increased in debt/GDP ratios in most OECD countries, most notably the U.S. This debt burden has raised questions regarding
As individuals we know that we cannot run a Ponzi scheme indefinitely. We might be able to roll over an old loan and replace it with a new loan for some period of time, but eventually creditors will demand repayment
Introduction Perhaps the most frequent objection to a rules based approach to fiscal policy is the potential constraint this imposes on the discretion of the government to pursue macro-economic stabilization policy. The debate between rules versus discretion in macro-economic policy
The Non-linear Relationship between Debt and Economic Growth Rinehart and Rogoff (2009a, 2009b, 2010) launched an ongoing debate regarding the relationship between debt and economic growth. Their empirical evidence for a large sample of countries revealed that public debt in
John Merrifield and Barry Poulson The U.S. responded to the financial crisis with an aggressive Keynesian fiscal stimulus, and emerged as one of the most indebted nations in the world, gross debt now exceeds Gross Domestic Product (GDP). The Congressional
Setting the Parameters for U.S. Fiscal Stabilization Policy What is the Rationale for New Fiscal Rules? Alesina and F. Giavazzi (eds.), Fiscal Policy after the Financial Crisis, NBER, The University of Chicago Press, Chicago. Persson, T., and G. Tabellini. 2000.