The effects of fiscal institutions on fiscal adjustments

Christos Chrysanthakopoulos and Athanasios Tagkalakis

No 305, Working Papers from Bank of Greece

Abstract: Using a panel of 40 advanced economies over the period 1990-2020 this paper investigates the effect of various characteristics of fiscal councils and fiscal rules on the probability of starting a fiscal adjustment, as well as on the probability that this fiscal adjustment will be successful. The relevance of fiscal institutions’ characteristics is verified when considering alternative definitions of successful fiscal adjustments. Our results are robust after controlling for endogeneity of fiscal institutions’ characteristics (by the Augmented Inverse Probability Weighted estimator) with fiscal adjustments. We find that a fiscal rule with well specified escape clause, that has multi-year expenditure ceilings and excludes public investment can induce a successful fiscal adjustment. A fiscal council with enhanced remit, independence and accountability and extended tasks and instruments increase the probability of successful fiscal adjustments. Finally, we find that a fiscal council with extended tasks and instruments increase the probability of successful fiscal adjustments based on spending cuts.

Keywords: Fiscal policy; Fiscal councils’ characteristics; Fiscal rules’ characteristics; Fiscal adjustments (search for similar items in EconPapers)
JEL-codes: E02 E61 E62 H61 (search for similar items in EconPapers)
Pages: 33
Date: 2022-10
New Economics Papers: this item is included in nep-law
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Journal Article: The effects of fiscal institutions on fiscal adjustment (2023)
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