There seems to be a widespread belief that a country can just choose to achieve a certain debt to GDP level if it is disciplined enough.
In reality things are a lot more complicated due to the impact of fiscal policy on growth. How that matters for the new EUR fiscal rules 👇
Reformed EU fiscal rules are set to underestimate negative growth effects of fiscal consolidation; hence, public debt ratios may turn out higher than expected. In a new paper, we assess the European Commission’s DSA assumptions and provide plausible alternative simulations. 🧵