Does it Cost to be Virtuous? The Macroeconomic Effect of Fiscal Constraints

Fabio Canova and Evi Pappa

No 4747, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the ?typical? transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.

Keywords: Budget restrictions; Fiscal policy transmission; Policy rules; Dynamic panels (search for similar items in EconPapers)
JEL-codes: E30 E50 H70 (search for similar items in EconPapers)
Date: 2004-11
New Economics Papers: this item is included in nep-mac and nep-pbe
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
https://cepr.org/publications/DP4747 (application/pdf)

Related works:
Chapter: Does It Cost to Be Virtuous? The Macroeconomic Effects of Fiscal Constraints (2006)
Working Paper: Does it cost to be virtuous? The macroeconomic effects of fiscal constraints (2005)
Working Paper: Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints (2005)
Working Paper: Does it cost to be virtuous? The macroeconomic effects of fiscal constraints (2004)
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:cpr:ceprdp:4747

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4747

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().