Negotiating Fiscal Sustainability against Socio-Economic Development: A Model-Based Policy Analysis

摘要

Fiscal policy can be multidimensional in nature. On the one hand, it addresses socio-economic development, and on the other, it deals with ensuring fiscal sustainability. The ability of the government to design fiscal policies to achieve the twin goal of socio-economic development and fiscal sustainability requires understanding the social, economic and public debt impact of the fiscal policy. This can only be achieved by considering the complex relationships between the social sector, the economic sector and the public sector. Even though existing models and techniques offer insights about the impact of fiscal policy on socio-economic development and fiscal sustainability, they lack sufficient causal explanation of the dynamic impact of fiscal policy on socio-economic development and fiscal sustainability. This paper develops a causal socio-economic model to help analyze the impact of fiscal policy on socio-economic development and fiscal sustainability. Results from the policy analyses found that expansionary fiscal policy is the best policy to achieve socio-economic development. Contractionary fiscal policy is found to be the best policy for ensuring fiscal sustainability. We conclude that the balanced budget fiscal policy is the most workable fiscal policy for the government to achieve the twin goal of socio-economic development and fiscal sustainability.