The Net Worth Approach to Fiscal Analysis : Dynamics and Rules

The net worth approach to fiscal analysis is cast in a simple model able to capture the dynamics and steady-state equilibria of public sector's debt, nonfinancial and financial assets, and net worth under alternative fiscal rules, including the golden rule and the golden rule cum debt stabilization fund. The paper also presents an adaptation of the model to the case of economies with depletable resources that have introduced investment oil funds, and illustrates the fiscal conditions required for the solvency of the associated fiscal rules. The model brings to the forefront the rate of return of public assets, highlighting the need for policymakers to decide on the appropriate level of assets and debt ratios. Finally, the model's potential for use in a range of contexts is demonstrated with a simple numerical simulation. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.