Numerical fiscal rules for economic unions : the role of sovereign spreads

by Juan Carlos Hatchondo, Leonardo Martinez, Francisco Roch

We study gains from introducing a common numerical fiscal rule in a "Union" of model economies facing sovereign default risk. We show that among economies in the Union, there is significant disagreement about the common debt limit the Union should implement: the limit preferred by some economies can generate welfare losses in other economies. In contrast, a common sovereign spread limit results in higher welfare across economies in the Union

MoreLess

Year of publication:	July 2021
Authors:	Hatchondo, Juan Carlos ; Martinez, Leonardo ; Roch, Francisco
Publisher:	[Washington, D.C.] : International Monetary Fund
Subject:	Fiscal Rules \| Sovereign Spread \| Spread Limit \| Debt Dilution \| Debt Intolerance \| Öffentliche Schulden \| Public debt \| Öffentliche Anleihe \| Public bond \| Finanzpolitik \| Fiscal policy \| Haushaltskonsolidierung \| Fiscal consolidation \| Zinsstruktur \| Yield curve \| Regelbindung versus Diskretion \| Rules versus discretion \| Eurozone \| Euro area \| EU-Staaten \| EU countries \| Europäischer Stabilitätsmechanismus \| European Stability Mechanism \| Länderrisiko \| Country risk \| Staatsbankrott \| Sovereign default