How Do Fiscal Rules Shape Governments' Spending Behavior?

Cezara Vinturis (cezara.vinturis@etu.uca.fr)
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Cezara Vinturis: UCA - Université Clermont Auvergne, CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne

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Abstract: At odds with the large literature devoted to the fiscal discipline effects of fiscal rules, only few contributions investigate their impact on public spending. Using a large sample of 185 countries, estimations based on the entropy balancing method reveal the following causal effects: fiscal rules significantly reduce total public spending and public consumption, leave public investment mostly unaffected, and increase the public investment-to-public consumption ratio. Moreover, the type of fiscal rule and countries' level of economic development influence the way fiscal rules affect public spending. Lastly, fiscal rules' features seem to be a major driving force of the way governments change public spending-and, notably, total spending and public investment-in response to the adoption of fiscal rules. Consequently, the public investment decline during recent times should mostly be attributable to other things but fiscal rules (which sometimes even raise public investment); and increased attention should be given to the various fiscal rules' features, which may enforce or, on the contrary, weaken their fiscal discipline performances.

Keywords: fiscal rules; public spending; public investment; fiscal rules' features; developed and developing countries JEL Codes: E62; H62 (search for similar items in EconPapers)
Date: 2022-10-02
Note: View the original document on HAL open archive server: https://uca.hal.science/hal-03839781v1
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Citations: View citations in EconPapers (6)

Published in Economic Inquiry, 2022, ⟨10.1111/ecin.13120⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03839781

DOI: 10.1111/ecin.13120

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