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How to Ensure Fiscal Sustainability in National and Sub-National Governments

Author: ANDREW HUGHES HALLETT and SVEND E. HOUGAARD JENSEN
Published in PFM, Vol. 12 No. 4

This paper considers a new framework for achieving fiscal discipline. The key idea is an inter-temporal assignment where regional fiscal policies focus on long-term objectives and federal monetary policies on short-term objectives. For practical implementation purposes, fiscal policy is stated in terms of a target for public debt relative to GDP. The result is a self-stabilizing framework in which the enforcement problem simplifies to checking if a certain primary surplus rule is being followed period by period.

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