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ERIC Number: EJ845044
Record Type: Journal
Publication Date: 2009
Pages: 16
Abstractor: As Provided
ISSN: ISSN-0276-8739
A Better Budget Rule
Dothan, Michael; Thompson, Fred
Journal of Policy Analysis and Management, v28 n3 p463-478 Sum 2009
Debt limits, interest coverage ratios, one-off balanced budget requirements, pay-as-you-go rules, and tax and expenditure limits are among the most important fiscal rules for constraining intertemporal transfers. There is considerable evidence that the least costly and most effective of such rules are those that focus directly on the rate of spending growth, even with their seemingly ad hoc nature and possibilities for circumvention. In this paper, we use optimal control theory and martingale methods to justify a transparent, nonarbitrary rule governing maximum sustainable rate of spending growth, treating the revenue structure of a jurisdiction as a given continuous-time stochastic process. Our results can be used to determine whether a proposed rate of spending growth is sustainable or not. (Contains 1 figure, 1 table, and 9 footnotes.)
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Publication Type: Journal Articles; Reports - Research
Education Level: N/A
Audience: N/A
Language: English
Sponsor: N/A
Authoring Institution: N/A