Government consumption smoothing in a balanced budget regime

Lovisa Persson

International Tax and Public Finance, 2016, vol. 23, issue 2, 289-315

Abstract: I investigate government consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive. Municipalities consume 87.6 % out of predicted current revenues in the time period leading up to the implementation of the balanced budget rule, and they consume 76.3 % out of predicted current revenue in the time period following the implementation. Fiscally weak municipalities are found to be more consumption sensitive than fiscally strong municipalities. Very weak municipalities have become more consumption sensitive compared with very strong municipalities since the implementation of the balanced budget rule. Thus, I find indicative evidence that both credit market constraints and formal budget rules such as balanced budget rules increase municipal consumption sensitivity. Copyright Springer Science+Business Media New York 2016

Keywords: Consumption smoothing; Balanced budget rule; Fiscal Federalism; H72; H72; D90 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10797-015-9358-z

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