Template-Type: ReDIF-Article 1.0
Author-Name: Gergely Baksay
Author-Email: baksayg@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (the central bank of Hungary)
Author-Name: Gábor P. Kiss
Author-Email: kissg@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (the central bank of Hungary)
Title: Second Act – second thoughts: the Hungarian debt rule
Abstract: If compliance with a fiscal rule in certain periods requires procyclical fiscal policy, it means that fiscal policy does not mitigate the cyclical fluctuations of the economy, but rather may amplify them, i.e. it is unable to perform its stabilisation function. On the basis of the analysis of the Hungarian debt rule, we found that the debt formula may result in procyclical fiscal policy at some points of the economic cycle. In this respect, an essential element of the rule is that it does not prohibit the general government from using financial assets for forming the debt differently from the deficit. This flexibility allows the avoidance of procyclical fiscal policy, but at the same time it may reduce the enforceability of disciplined fiscal policy.
Classification-JEL: E32, E62, H63.
Keywords: fiscal rules, debt dynamics, counter cyclical, procyclical.
Journal: MNB Bulletin
Pages: 7-13
Volume: 8
Issue: 3
Year: 2013
Month: October
File-URL: http://www.mnb.hu/letoltes/baksay-pkiss.pdf
File-Format: Application/pdf

Handle: RePEc:mnb:bullet:v:8:y:2013:i:3:p:7-13