Tax Policy and Uncertainty: Modelling Debt Projections and Fiscal Sustainability

Presenting innovative modelling approaches to the analysis of fiscal policy and government debt, this book moves beyond previous models that have relied upon the assumption that various age-specific rates and policy variables remain unchanged when it comes to generating government expenditures and tax revenues. As a result of population ageing, current policy settings in many countries are projected to lead to unsustainable levels of public debt; Tax Policy and Uncertainty explores models that allow for feedbacks and uncertainty to combat this.

Applicable to any country, the models in the book explore the optimal timing and extent of tax changes in the face of anticipated high future debt. Chapters produce stochastic debt projections, including probability distribution of debt ratios at each point in time. It also offers important analysis of fiscal policy trade-offs as well as providing advice on when and by how much tax rates should be increased.

Economics scholars focusing on fiscal policy will appreciate the improved models in this book that allow both for uncertainty and feedback effects arising from responses to increased debt. It will also be helpful to economic policy advisors and economists in government departments.

Christopher Ball, John Creedy, Victoria University of Wellington and Grant Scobie, formerly The Treasury, Wellington, New Zealand