Fiscal Rules, Robust Correction Mechanisms, and Sovereign Spreads

Julien Acalin, Leonardo Martinez and Francisco Roch ()

Department of Economics Working Papers from Universidad Torcuato Di Tella

Abstract: Both policy advice and economic theory advocate for fiscal rules with a clear anchor that reflects fiscal risk and a robust correction mechanism that implements a more ambitious fiscal consolidation when fiscal risk is higher. However, among more than 120 countries with fiscal rules, only six are identified as implementing such robust correction mechanisms: Armenia, Costa Rica, Cyprus, Czech Republic, Poland, and Slovakia. Using synthetic control methods and dynamic panel regressions, this paper finds that the introduction of fiscal rules with robust correction mechanisms has been effective in these countries, triggering a persistent median spread reduction of about 25 percent, or 75 basis points, after one year.

Keywords: Fiscal Rules; Fiscal Risk; Sovereign Spreads; Robust Correction Mechanisms (search for similar items in EconPapers)
JEL-codes: C22 E61 E65 G12 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-10
New Economics Papers: this item is included in nep-tra
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Working Paper: Fiscal Rules, Robust Correction Mechanisms, and Sovereign Spreads (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:udt:wpecon:2025_11

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