“No large European countries and only few small ones have met the so-called Bohn rule during the past 40 years or so.” Khyati Chauhan co-authored this International Monetary Fund working paper that explores some key questions addressing Europe’s debt sustainability model.
I'm happy to share that my paper with Ales Bulir, who I call the 'Europe expert', is published as an IMF Working Paper. Titled, "Europe’s Debt (Un)Sustainability: Looking Through Bohn’s Magnifying Glass", we examine fiscal sustainability of 26 European countries and the United States. 📌 Our analysis reveals that only a few European Union countries meet the criteria outlined by the Bohn rule. While evaluating fiscal sustainability is inherently complex, the Bohn rule provides a straightforward assessment framework. It stipulates that past increases in public debt must be consistently offset by current and future fiscal surpluses to maintain debt at a stable, steady-state level. 📌 Abstract "No large European countries and only few small ones have met the so-called Bohn rule during the past 40 years or so. The Bohn rule specifies that past increases of public debt need to be systematically compensated with current and future fiscal surpluses to stabilize debt at some steady-state level. We find that post-1980 European fiscal primary balances have been driven by spending growth and consumption smoothing. The results change little between periods before and after the global financial crisis." Read the full paper here: https://lnkd.in/gGsD3anA