The public budget constraint: what speed of adjustment?

Summary While the definition of the public budget constraint does not seem to be controversial, the research focus of this thesis is the speed at which states decide to comply with this constraint. The hypothesis is that the speed of adjustment is crucial in the overall evaluation of fiscal policy as a countercyclical instrument. More specifically, we seek to answer three questions: (i) historically, how quickly have governments resolved their fiscal imbalances? (ii) what are the effects of different fiscal stimulus packages according to the speed of adjustment and their composition? (iii) how does the duration of an accommodating monetary policy influence the above results? Chapter 1 shows that the criticism of econometric tests of sustainability is not insurmountable. We try to characterize the degree of persistence of fiscal imbalances using a fractional approach, which allows us to classify countries according to the reaction functions of their fiscal authorities. Chapter 2 proposes to assess the effects of post-recovery adjustments using a general equilibrium model. Regardless of the fiscal instrument chosen for the stimulus, an acceleration of the adjustment has a negative effect on output in the medium run. Chapter 3 assesses the policy mix in terms of the timing of fiscal adjustments after the stimulus, relative to the length of the zero interest rate period. An unstable regime of excessive consolidation emerges when the commitment to fiscal adjustment is very strong, irrespective of the central bank's behavior toward inflation.