Valuable legacy? The effect of inherited fiscal rules

Csaba Tóth

Public Choice, 2019, vol. 178, issue 1, No 2, 3-30

Abstract: Abstract The working mechanism of national fiscal rules depends strongly on whether a government must comply with its own rules or inherited ones. In the former case, a government usually introduces fiscal rules to show its commitment to a disciplined fiscal policy (the signaling function). In the latter context, however, inherited rules constitute external obstacles to budgetary policymaking (the limiting function). This study mainly is concerned with the limiting function and therefore bases its empirical analysis on periods when the ruling government inherited fiscal rules introduced by a previous government. The results of a panel-data econometric study indicate that national fiscal rules do contribute to disciplined fiscal policy after a change in government in times of an economic upturn. That finding, however, does not mean that the signaling function is ineffective: quite the contrary. My results, in line with the literature, indicate that the double functions of rules may complement one another. A government that introduces such rules is often already committed to a disciplined policy and wishes to signal such commitment in the short term. With the appearance of new government, however, the function of rules changes, and they efficiently promote disciplined fiscal policy in the long term.

Keywords: Fiscal policy; Fiscal rules; Fiscal discipline; Political economy (search for similar items in EconPapers)
JEL-codes: E62 H60 H62 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://link.springer.com/10.1007/s11127-018-0605-6 Abstract (text/html)
Access to full text is restricted to subscribers.

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:pubcho:v:178:y:2019:i:1:d:10.1007_s11127-018-0605-6

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11127/PS2

DOI: 10.1007/s11127-018-0605-6

Access Statistics for this article

Public Choice is currently edited by WIlliam F. Shughart II

More articles in Public Choice from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().