Fiscal rules and volatility: the role of stabilising properties and compliance

Wolf Heinrich Reuter, Olegs Tkacevs and Karlis Vilerts

Empirica, 2022, vol. 49, issue 1, No 2, 52 pages

Abstract: Abstract Using data of the EU28 Member States for the period 1996–2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, for example, be budget balance rules that set ceilings in cyclically adjusted terms. Furthermore, the stringency of fiscal rules makes their stabilising effect more pronounced. Actual compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy.

Keywords: Fiscal rules; Fiscal policy volatility; Panel data; Compliance (search for similar items in EconPapers)
JEL-codes: C23 E32 E62 H60 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://link.springer.com/10.1007/s10663-021-09522-9 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
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:kap:empiri:v:49:y:2022:i:1:d:10.1007_s10663-021-09522-9

Ordering information: This journal article can be ordered from
http://www.springer. ... ration/journal/10663

DOI: 10.1007/s10663-021-09522-9

Access Statistics for this article

Empirica is currently edited by Fritz Breuss and Fritz Breuss

More articles in Empirica from Springer, Austrian Institute for Economic Research, Austrian Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().