Assessing Fiscal Sustainability: A Cross Country Comparison

Abstract

To monitor fiscal sustainability this paper propose recursive algorithm derived from the law of motion debt-to-gdp ratio, subject to government reaction function that links convergence with primary surpluses. Based on the quarterly estimates of this algorithm in the 1990s, 12 developed and developing countries are ranked according degree of sustainabilit. For a number of countries, the paper finds evidence of causality between the fiscal policy stance and growth-adjusted interest rates.