The paper addresses first the question of sustainability of debt growth by examining the behavior of taxation implied by fiscal rules respecting a government`s intertemporal budget constraint. Sustainable debt growth may require the tax burden to rise above some socially acceptable level. In...

A fiscal shock due to a shift in taxes or in government spending will, at some point in time, constrain the future path of taxes and spending, since the government's intertemporal budget constraint will eventually have to be met. This simple fact is surprisingly overlooked in analyses of the...