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European Economy, Evaluating Fiscal Policy – A Rule of Thumb

Carnot, N. (2014) “European Economy, Evaluating Fiscal Policy – A Rule of Thumb“, European Commission – Economic Papers 526, August.

 

This paper introduces a simple rule for appraising the economic soundness of fiscal policies. It connects fiscal policy to a long-run debt objective, taken as an anchor, while arbitraging symmetrically between this debt objective and output stabilisation. The rule offers a benchmark to assess the evolution of primary expenditure, net of the impact of discretionary revenue measures, taken as a proper operational target for annual fiscal policy. The properties and implications of this rule of thumb are analysed drawing on qualitative arguments and retrospective simulations.

 

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