What Does Fiscal Sustain ability Mean? A Theoretical Overview

The starting point in the investigation of what fiscal sustainability means is represented by the importance of this issue. Fiscal sustainability involves especially how governments should manage their budget deficit and public debt that harmful the welfare state. The concept of sustainability has the following three dimensions: environmental, social and economic The aim of this study is to find a common theoretical definition of fiscal sustainability which represents a component of economic sustainability, taking into account the multiple meanings presented in the literature. We analyze definitions based on the relation between debt to GDP ratio and interest rate; on the inter-temporal budget restrain; on the reaction of macroeconomic variables to an increase in debt level; on stability and safety; on solvency and liquidity. We also discuss vulnerability as alternative way to define fiscal sustainability. Thus, the paper presents the multiple meanings that had been used to capture the sense of fiscal sustainability over time.