The case for fiscal rules

Harald Badinger and Wolf Heinrich Reuter

Economic Modelling, 2017, vol. 60, issue C, 334-343

Abstract: This paper estimates the effects of fiscal institutions on fiscal policy outcomes, addressing issues related to measurement and endogeneity in a novel way. Recently developed indices, based on partially ordered set theory, are used to quantify the stringency of fiscal rules. Identification of their effects is achieved by exploiting the exogeneity of institutional variables (checks and balances, government fragmentation, inflation targeting), which are found to be relevant determinants of fiscal rules. Our two-stage least squares estimates for (up to) 74 countries over the period 1985–2012 provide strong evidence that countries with more stringent fiscal rules have higher fiscal balances (lower deficits), lower interest rate spreads on government bonds, and lower output volatility.

Keywords: Fiscal rules; Fiscal balances; Interest rates; Volatility (search for similar items in EconPapers)
JEL-codes: E62 H30 H60 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (63)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:60:y:2017:i:c:p:334-343

DOI: 10.1016/j.econmod.2016.09.028

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