'Toward a Top-Down Fiscal Rule'
Abstract: Most existing fiscal rules have, at best, a tenuous link to the principle of solvency. Unsurprisingly, they lead to poor results when followed or they are not followed at all. The reason is that solvency is not a practical interpretation of solvency. It proposes a 'top-down' rule that seeks to achieve sustainability not by binding the government with black-box calculations but by requiring that it makes transparent decisions on all aspects of the debt dynamics. The government adopts debt targets and then chooses future primary budget balances consistent with the targets and its own explicit assumptions on future interest and growth rates. One debt target is set for the end of the legislature and is binding. Another debt target is set for a few decades ahead; it cannot be binding but it justifies the shorter-term target.
Charles Wyplosz is Emeritus Professor at the Graduate Institute in Geneva where he was Director of the International Centre for Money and Banking Studies. Previously, he has served as Associate Dean for Research and Development at INSEAD, as Director of the PhD program in Economics at the Ecole des Hautes Etudes en Science Sociales in Paris and as Policy Director of the Center for Economic Policy Research (CEPR). He is Editor of Covid Economics, which he launched in March 2020.
His main research areas include financial crises, European monetary integration, fiscal policy and regional monetary integration. He is the co-author of two leading textbooks and has published several books and many professional articles. He has served as consultant to many international organizations and governments and is a frequent contributor to public media. A French national, Charles Wyplosz holds a degree in Engineering from Ecole Centrale, Paris, and a PhD in Economics from Harvard University. He has been awarded the title of Chevalier de la Légion d'Honneur.
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