The impact of expenditure rules on budgetary discipline over the cycle

Fédéric Holm-Hadulla, Sebastian Hauptmeier and Philipp Rother

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Abstract: We study the impact of expenditure rules on the propensity for governments to deviate from their expenditure plans in response to surprising cyclical developments. Theoretical considerations suggest that due to political fragmentation in the budgetary process expenditure policy might be prone to a pro-cyclical bias. However, this tendency may be mitigated by strictly enforced expenditure rules. These hypotheses are tested against data from a panel of European Union (EU) Member States. Our key findings are that (i) deviations between actual and planned government expenditure tend to be positively related to output gap surprises, and (ii) expenditure rules reduce this pro-cyclical bias. These results are particularly pronounced when the analysis is confined to spending items with a high degree of budgetary flexibility.

Keywords: Social; Sciences; &; Humanities (search for similar items in EconPapers)
Date: 2011-06-25
Note: View the original document on HAL open archive server: https://hal.science/hal-00711446
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Citations: View citations in EconPapers (8)

Published in Applied Economics, 2011, pp.1. ⟨10.1080/00036846.2011.572855⟩

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Journal Article: The impact of expenditure rules on budgetary discipline over the cycle (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00711446

DOI: 10.1080/00036846.2011.572855

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