Does it cost to be virtuous? The macroeconomic effects of fiscal constraints
Fabio Canova () and
Evi Pappa ()
LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library
We study whether and how fiscal restrictions alter the business cycle features of macrovariables for a sample of 48 US states. We also examine the ”typical” transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.
Keywords: Budget restrictions; fiscal policy transmission; policy rules; dynamic panels. JEL classification codes : E3; E5; H7 (search for similar items in EconPapers)
JEL-codes: E3 E5 H7 (search for similar items in EconPapers)
Pages: 33 pages
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8) Track citations by RSS feed
Downloads: (external link)
http://eprints.lse.ac.uk/526/ Open access version. (application/pdf)
Chapter: Does It Cost to Be Virtuous? The Macroeconomic Effects of Fiscal Constraints (2006)
Working Paper: Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints (2005)
Working Paper: Does it Cost to be Virtuous? The Macroeconomic Effect of Fiscal Constraints (2004)
Working Paper: Does it cost to be virtuous? The macroeconomic effects of fiscal constraints (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:526
Access Statistics for this paper
More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().