Do Sound Public Finances Require Fiscal Rules Or Is Market Pressure Enough?

Michael Bergman, Michael M. Hutchison and Svend E. Hougaard Jensen

No 489, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: This paper discusses the balance between market pressure and fiscal rules in order to keep public finances on a sustainable path. We provide empirical evidence on market assessments of sovereign default risk to economic news, announcements of national austerity programs, EU programs designed to support government finances, and banking fragility emanating from several countries in the euro area affected by the European sovereign debt crisis. We find that, in general, the quality of market signals is an insufficient indicator alone to accurately guide the conduct of fiscal policy, particularly during the crisis period. Therefore, market signals should be used to complement fiscal rules rather than serving as a substitute.

JEL-codes: E62 G12 G14 H60 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2013-04
New Economics Papers: this item is included in nep-eec and nep-mac
References: Add references at CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://ec.europa.eu/economy_finance/publications/ ... r/2013/ecp489_en.htm (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0489

Access Statistics for this paper

More papers in European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission Contact information at EDIRC.
Bibliographic data for series maintained by ECFIN INFO ().