Browsing by Author "Fuss, Jake"

Now showing 1 - 2 of 2
  • Thumbnail Image
    Item
    An evaluation of three alternative fiscal anchors for Canada
    (2022) Dahlby, Bev; Ferede, Ergete; Fuss, Jake
    In this paper, we evaluate three fiscal anchors that Canadian governments could adopt—a debt reduction target, a ceiling on the ratio of interest payments to revenues, and a balanced budget rule—balancing the primary budget either through expenditure restraint or tax increases. We simulate the adoption of these fiscal anchors using an economic model in which governments’ fiscal policies affect the growth rate of the economy and the real interest rate on public debt. Each scenario has different implications for government debt ratios, economic growth rates, and real interest rates on government debt from 2025 to 2050.
  • Thumbnail Image
    Item
    The fiscal costs of debt-financed government spending
    (2022) Dahlby, Bev; Ferede, Ergete; Fuss, Jake
    In this paper, we show that the notion that debt-financed spending has a low fiscal cost is misleading. We review econometric studies of OECD countries that show that the growth rate declines, interest rates increase, and the r - g differential increases as a country’s public debt ratio increases. We also estimate a simple regression model of the r – g gap in Canada based on the annual data from 1991 to 2019. Consistent with the findings of other more elaborate econometric studies, the regression results indicate that the r – g gap in Canada is affected by international financial and economic conditions, as reflected by the r – g gap in the United States, but also by the public debt to GDP ratio. In particular, a one percentage point increase in the debt to GDP ratio of the federal, provincial, territorial, and local government sector is associated with a 6.7 basis point increase in the Canadian r – g gap.