Data and Code for: "Fiscal Rules and the Sovereign Default Premium"

We use a sovereign default model to study fiscal rules. A debt-brake (spread-brake) rule imposes a ceiling on the fiscal deficit when the sovereign debt (spread) is above a threshold. For our benchmark calibration, similar welfare gains can be achieved withthe optimal debt or spread brake. However, for a “Union” of heterogeneous economies, a common spread brake generates larger welfare gains than a common debt brake. Furthermore, gains from abandoning a common debt brake may be significant for economies that are unnecessarily constrained by it, suggesting it could be difficultto commit to a common debt rule in the Union. In contrast, abandoning a common spread brake would generate welfare losses on all member economies, facilitating commitment to a common spread rule. Even if we could tailor fiscal rules to a single economy, a spread brake would be a better option when there is uncertainty about key characteristics of this economy or these characteristics may change over time.