Public-Debt / Output Guidelines: the Case of Israel.

27/06/2000 |  Hercowitz Zvi, Strawczynski Michel
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Fiscal Policy

Public Debt/Output Guidelines: The Case of Israel
Z. Hercowitz and M. Strawczynski

Abstract

This paper analyzes the implications of adding to a tax-smoothing framework the cost 
of deviating upwards from a public debt/output guideline.  The implications for the 
dynamic paths of the tax rate, the debt/output ratio and the government 
spending/output ratio are derived.  A simulation of the model with  Israeli data 
suggests that Israeli fiscal behavior is consistent with the (implicit) existence of such a 
guideline.  Some international perspective, with countries having explicit guidelines in 
the context of the Maasricht Treaty, is also presented.

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