The government's inter-temporal budget constraint states that the initial debt level should be equal to the present value of future surpluses.
Many economists have voiced grave concerns over using inter-temporal budget constraint as a de facto definition or criterion for fiscal sustainability.
[8][9] Also, it has been shown that under plausible assumptions the inter-temporal budget constraint is in fact not the correct criterion for sustainability.
The indicators measure the fiscal adjustment required to bring public finances back to sustainable track.
Specifics of the indicator depend on the operational definition of fiscal sustainability and the underlying economic modelling framework employed in a study.
The infinite horizon tax gap gives the adjustment required to satisfy the inter-temporal budget constraint in terms of a permanent one-time change to projected path of primary balance to GDP ratios.
[14] Although these factors are significant, the core indicator of outstanding government debt in proportion to GDP is the go to metric for analyzing the health of a country's public finance sector.
[4] If a country does suffer from a high proportion of outstanding government debt then it is very vulnerable to interest shocks and a negative growth rate.
[4] This is expected to change with the strong support of financial independent institutions assuming they respect the SGP rules.
[4] Additionally, reforms that address the root causes of risks to fiscal responsibility take into account the costs of aging and their components.
Although longevity is an arguably positive outcome, when paired with a decline in fertility it can create higher financial stress on working people.
[16] Key aspects that influence the age-dependency ratio:[16] Political actors often get in the way of financial stability due to competing interests between stakeholders that have a lot to gain through not implementing changes that would benefit society as a whole.
Creating independent fiscal institutions keeps these instruments out of the reach of political actors that would seek to use them for their personal benefit.
The potential for states to reform their fiscal policy to ensure sustainability is typically oriented around institutional independence and covering the cost of aging over a longer time horizon.
[4] As public pension spending is the most affected by the demographic shift of aging at the EU level accounts for 11% of GDP it is critical to develop reforms that anticipate this trend.