Fiscal Issues in Financial Crisis
Fiscal constraint is potentially lax in catching-up economies, but it has not been abused by most countries considered in this paper. Fiscal risks are significant currently, but sustainability and structural balances are not threatened as a rule, if the return to potential growth rates is to be achieved in the medium run. The risks to countercyclical public financing could be discouraged by a comprehensive EU stabilization policy of some sort. Early euro adoption, absent credible stabilization policy, is not the first best policy option for fiscal policy targets.
Keywords: public debt, sustainability, No-Ponzi game criterion, private debt, foreign debt
JEL classification: E62, G18
Countries covered: European Union, New EU Member States, SEE
Research Areas: Macroeconomic Analysis and Policy