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(Un-)intended effects of fiscal rules

Heiko T. Burret and Lars Feld ()

European Journal of Political Economy, 2018, vol. 52, issue C, 166-191

Abstract: The paper investigates the fiscal effects of Swiss cantonal debt brakes by taking explicitly into account the rules’ coverage. An in-depth analysis provides unique evidence that suggests the following: First, fiscal rules reduce public deficits. The effect is stronger the better the analyzed budget position corresponds with the variable targeted by the rules. Second, cantonal debt brakes exhibit some unintended effects, i.e., an evasion into unconstrained accounts, emphasizing the importance of constraining all accounts. Third, the existence of political budget cycles depends on the institutional context, i.e., the timing of elections and the presence of debt brakes. Fifth, cantonal debt brakes dampen the fiscal deterioration during unexpected deficit shocks by more rapid fiscal adjustments.

Keywords: Fiscal rules; Political budget cycles; Elections; Fiscal shocks; Evasion (search for similar items in EconPapers)
JEL-codes: H72 H74 H77 D72 K39 (search for similar items in EconPapers)
Date: 2018
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