Fiscal Rules and Discretion in a World Economy

Marina Halac and Pierre Yared

American Economic Review, 2018, vol. 108, issue 8, 2305-34

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.

JEL-codes: D82 E43 E62 H62 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/aer.20151180
References: Add references at CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/aer.20151180 (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... 5_347sr3W5o--iWTbHOu (application/pdf)
https://www.aeaweb.org/articles/attachments?retrie ... bury53UKpY4Ygef3srou (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Fiscal Rules and Discretion in a World Economy (2018)
Working Paper: Fiscal Rules and Discretion in a World Economy (2015)
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:aea:aecrev:v:108:y:2018:i:8:p:2305-34

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Review is currently edited by Esther Duflo

More articles in American Economic Review from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().