| Macro | Financial | Growth | Retail | Motor | Printing | Back |
Is Fiscal Sustainability Attainable? High interest rates, low growth and general balance effect. |
A decision support service |
| Authors: F CvN Fourie and P Burger Reviewed by: M K C Jackson | |
Review : Article in The South African Journal of Economics June 2000: |
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| The article examines the issue of whether, and under what conditions, a given level of government debt relative to GDP can be sustained. It questions the established formula that relates fiscal sustainability to the primary budget surplus and ratio of real interest rates to real GDP growth rate. During the last two decades, the world has entered an era of high real interest rates, with these frequently being above real GDP growth rates. This makes fiscal sustainability more difficult to achieve in accordance with the established formula. Debt ratios in may countries have correspondingly increased. In the neoclassical view, the remedy for this situation is maintaining a primary government surplus. However, the authors argue that this may not be the appropriate solution since the effect is to shift the problematic debt situation to other sectors of the economy. The consequence could well be increased liquidations and insolvencies in private sector business and among individuals. The authors suggest that the route forward may lie in seeking less stringent real interest rate levels, but through a co-ordinated policy framework involving other aspects of monetary policy as well as fiscal and other economic policies. A focus on human capital formation, based on the postulates of new growth theory, would be an appropriate component for such a strategy, as would the role of government in general in the promotion of economic growth. | |
| Macro | Financial | Growth | Retail | Motor | Printing | Back | |
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| econometrix | 01-Mar-04 | ||