Fiscal policy sustainability: a simulation of the budget constraint

This article examines the sustainability of fiscal policy through simulations of the intertemporal budget constraint, using the Argentine economy as a case study. The research focuses on the government’s ability to generate revenue and manage deficits without compromising the stability of public debt. An analytical approach is employed that considers public solvency and compliance with the primary balance targets necessary to ensure that debt growth does not outweigh the government’s capacity to meet its future obligations. Using data from 2001 and assumptions regarding interest rates and Gross Domestic Product (GDP) growth, sustainable primary balances of approximately 1.3% of GDP are determined for a long-term horizon. The findings suggest that, while it is vital to adjust fiscal accounts, a negative perception of fiscal policy can result in higher interest rates, increasing the cost of financing and further complicating the fiscal situation. The implications highlight the need for caution in implementing fiscal policies to avoid future solvency difficulties. (Abstract and audio: Department of Economic Publications)