ALTERNATIVE METHOD OF FISCAL STABILITY ASSESSMENT

Purpose:The purpose of this article is to propose an alternative method for analyzing the fiscal stability presented by the stability of the general government debt-to-GDP ratio.This presented method based on a model that takes into account different fiscal rules and we compare this method with classical methods used by institutions, with particular emphasis on the methods used by the European Commission.Design/methodology/approach: The article compares selected classical methods for assessing stability-stability indicators and Debt Sustainability Analysis (DSA) used by the European Commission-with the proposed alternative method of assessing the local stability of the debtto-GDP ratio using a model that describes an open economy.This model consists of three equations: the multiplier equation, the law of motion for debt and the fiscal rule incorporating various fiscal variables.Findings: Using the proposed alternative method for assessment of fiscal stability, it can be noted that replacing the general government debt/GDP ratio that take into account in the convergence criteria with another instrument in the fiscal rule, we may obtain different results regarding local debt stability.Practical implications: The presented alternative method of fiscal stability assessment aims to attract the attention of institutions and entities analyzing debt stability to the importance of fiscal rules and the type of fiscal instrument in the analysis of fiscal stability.Originality/value: In the classical methods of fiscal stability assessment used by researchers and by various institutions, with particular emphasis on the European Commission, there is a lack of analyses of the impact of the instrument included in fiscal rule on fiscal stability represented by the stability of the debt/GDP ratio.The proposed alternative method of fiscal stability assessment fills this research gap.This added value of this article is addressed to institutions that study the fiscal stability.The proposed alternative method may be considered by the European Commission, the IMF, the Fiscal Council, and the government.