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S1 and S2 Sustainability Gap Indicators

Source: R/sustainability_gap.R
dk_sustainability_gap.Rd

Computes the S1 and S2 fiscal sustainability gap indicators used by the European Commission to assess the size of the permanent budgetary adjustment required to ensure debt sustainability.

Usage

dk_sustainability_gap(
  debt,
  structural_balance,
  gdp_growth,
  interest_rate,
  ageing_costs = 0,
  target_debt = 0.6,
  target_year = 20,
  indicator = c("both", "S1", "S2")
)

Arguments

debt

Numeric scalar. Current debt-to-GDP ratio.

structural_balance

Numeric scalar. Current structural primary balance as a share of GDP (positive = surplus).

gdp_growth

Numeric scalar. Real GDP growth rate.

interest_rate

Numeric scalar. Real interest rate.

ageing_costs

Numeric scalar. Projected increase in age-related expenditure as percentage points of GDP. Default 0.

target_debt

Numeric scalar. Target debt-to-GDP ratio for S1. Default 0.60.

target_year

Integer scalar. Number of years to reach the target debt ratio. Default 20.

indicator

Character. Which indicator to compute: "S1", "S2", or "both" (default).

Value

An S3 object of class dk_sgap containing:

S1

The S1 sustainability gap (or NA if not requested).

S2

The S2 sustainability gap (or NA if not requested).

risk_S1

Risk classification for S1: "low", "medium", or "high".

risk_S2

Risk classification for S2: "low", "medium", or "high".

required_pb

The required structural primary balance implied by S1.

current_pb

The current structural primary balance.

inputs

A list storing all input parameters.

Details

S1 measures the permanent adjustment in the structural primary balance needed to bring the debt-to-GDP ratio to target_debt in target_year years, taking into account projected increases in age-related expenditure.

S2 measures the permanent adjustment needed to stabilise the debt-to-GDP ratio over an infinite horizon, incorporating the full net present value of future increases in age-related spending.

References

European Commission (2012). Fiscal Sustainability Report 2012. European Economy 8/2012, Directorate-General for Economic and Financial Affairs.

Examples

dk_sustainability_gap(
  debt = 0.90,
  structural_balance = -0.01,
  gdp_growth = 0.015,
  interest_rate = 0.025,
  ageing_costs = 0.02
)
#> 
#> ── Sustainability Gap Indicators ───────────────────────────────────────────────
#> • Current debt/GDP: 90%
#> • Current structural PB: -1%
#> • Interest rate: 2.5%
#> • GDP growth: 1.5%
#> 
#> 
#> ── S1 Indicator ──
#> 
#> • Required PB adjustment: 4.3 pp
#> • Required structural PB: 2.3%
#> • Target debt/GDP: 60% in 20 years
#>   Risk: MEDIUM
#> 
#> 
#> ── S2 Indicator ──
#> 
#> • Required PB adjustment: 204.9 pp
#> • Ageing costs: 2 pp
#>   Risk: HIGH