Fiscal Rules and Discretion in a World Economy

Marina Halac and Pierre Yared

No 12570, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Governments are present-biased toward spending. Fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks. We compare coordinated rules -- chosen jointly by a group of countries -- to uncoordinated rules. If governments' present bias is small, coordinated rules are tighter than uncoordinated rules: individual countries do not internalize the redistributive effect of interest rates. However, if the bias is large, coordinated rules are slacker: countries do not internalize the disciplining effect of interest rates. Surplus limits enhance welfare, and increased savings by some countries or outside economies can hurt the rest.

Keywords: Institutions; Asymmetric and private information; Macroeconomic policy; Structure of government; Political economy (search for similar items in EconPapers)
JEL-codes: D02 D82 E60 H10 P16 (search for similar items in EconPapers)
Date: 2018-01
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (40)

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Related works:
Journal Article: Fiscal Rules and Discretion in a World Economy (2018)
Working Paper: Fiscal Rules and Discretion in a World Economy (2015)
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