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Sustainable Fiscal Policy and Economic Stability

Theory and Practice Philippe Burger, Chairperson, Department of Economics, University of the Free State, South Africa
The public debt/GDP ratio in several countries showed the largest ever peacetime increase during the last 20 years of the twentieth century, thereby causing widespread fiscal unsustainability. Towards the latter half of the 1990s, several governments initiated steps to reverse this trend however, they frequently found that their policies were not always successful. This book examines why.
Extent: 256 pp
Hardback Price: $135.00 Web: $121.50
Publication Date: 2004
ISBN: 978 1 84376 632 2
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The public debt/GDP ratio in several countries showed the largest ever peacetime increase during the last 20 years of the twentieth century, thereby causing widespread fiscal unsustainability. Towards the latter half of the 1990s, several governments initiated steps to reverse this trend however, they frequently found that their policies were not always successful. This book examines why.

Philippe Burger uses and develops the ‘general balance framework’ to argue that merely running a primary surplus to restore fiscal sustainability will not always work. In effect, governments may simply shift the problem to other sectors of the economy, thereby creating economic instability. By linking the budget constraints of government and non-governmental agents at a macroeconomic level, the author's framework allows him to measure how changes to the budget of one economic sector are transferred to the budgetary position of another sector. By taking account of these sectoral balance effects, as well as the role of uncertainty and expectations, the book develops a set of rules for the maintenance of fiscal sustainability and economic stability.

By offering non-orthodox policy prescriptions for governments to return to a position of fiscal sustainability, this original book fills an important gap in the literature. It will be required reading for economists and academics working on fiscal and macroeconomic policy, especially from a Post-Keynesian perspective, and policymakers interested in ensuring economic and fiscal stability.
‘Fiscal policy can be a potent force for stabilising the economy but the issue of financial sustainability for budget deficits is often raised. This book provides a serious and refreshing examination of the issues involved. The book is to be particularly welcomed for providing a menu of rules for the successful operation of a sustainable fiscal policy.’
– Malcolm Sawyer, University of Leeds, UK
Contents: 1. Introduction 2. Fiscal Sustainability: The Origin, Development and Nature of the Issue 3. The Roots of Mainstream Theory on Fiscal Sustainability 4. The General Balance Framework 5. Fiscal and Financial Sustainability and the Nature of Expectations, Markets and Preferences 6. Economic Instability as Spreading Unsustainability 7. Towards More Sophisticated Policy Rules to Establish Fiscal Sustainability 8. Conclusion Bibliography Index