There is no controversy on the definition of public budget constraint. However, there is much debate on the speed of fiscal adjustment through which governments decide to satisfy their budget constraint : this is the topic of this PhD thesis. The main assumption is that the speed of adjustment is critical in the comprehensive assessment of the fiscal policy. More specifically, I answer to the following three questions: (i) historically, how fast was the resorption of governments’ fiscal imbalances? (ii) What are the effects of different fiscal stimulus given the speed and the composition of the adjustment? (iii) How the length of an accommodative monetary policy affects the answers of the above questions? The first chapter shows that the weaknesses of econometric tests of sustainability can be overcome. I characterize the degree of persistence in fiscal imbalances by using fractional econometrics. This methodology allows to classify countries according to the reaction functions of their fiscal authorities. The chapter two assesses, through a general equilibrium model, the effects of adjustments after an expansive fiscal policy. I show that, whatever the preferred instrument for fiscal stimulus, an acceleration in the speed of adjustment has a negative effect on production in the medium term. Given that the nominal interest rate reached its lower bound, the chapter three assesses, in this context, a policy mix based on the timing of adjustments after the fiscal stimulus. An unstable regime of excessive consolidation occurs when the fiscal adjustment is strong regardless of the behavior of the central bank towards inflation.
Public budget constraint and the speed of adjustment