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I am grateful to Jaebin Ahn, Abdelhak Senhadji, Jaejoon Woo, and the seminar participants at the IMF’s Fiscal Affairs Department for their helpful comments. Any errors are solely the author’s responsibility.
Leeper and Walker (2011) defined fiscal limit as a point beyond which adjustments in tax rates alone cannot stabilize value of government debt. Since the current status of fiscal policy, whether it is the current debt level or current tax rate, is observable, thus measuring fiscal space is equivalent to measuring the fiscal limit.
Estimating the effective maximum on the Laffer curves will be challenging.