NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Sovereign Debt Risk Premia and Fiscal Policy in Sweden

Huixin Bi, Eric M. Leeper

NBER Working Paper No. 15810
Issued in March 2010
NBER Program(s):   EFG

This paper takes a step toward providing a general equilibrium framework within which to study the nub of the current fiscal debate around the world: what are the tradeoffs between short-run stabilization and long-run sustainability when the perceived riskiness of government debt depends, in part, on the current and expected fiscal environment in place? We calibrate a simple model to Swedish fiscal data in two periods: before and after the financial crisis of the early 1990s. We compute the dynamic fiscal limit, which depends on the peak of the Laffer curve, for the pre-crisis and three alternative post-crisis fiscal policies. The model simulates the macroeconomic consequences of alternative policies in the face of the sequence of bad output shocks that Sweden experienced from 1991-1997.

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This paper was revised on December 5, 2011

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Document Object Identifier (DOI): 10.3386/w15810

Published: “Sovereign Debt Risk Premia and Fiscal Policy in Sweden,” Swedish Economic Policy Review , 2010 (with Huixin Bi)

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