Commited to Flexible Fiscal Rules

Laura Pagenhardt, Christoph Grosse Steffen and Malte Rieth ()

VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association

Abstract: We study the impact of fiscal rules on macroeconomic performance following natural disaster shocks, using dynamic panel models and quarterly data for 89 countries. We find that countries with fiscal rules perform significantly better in the aftermath of such shocks than countries without rules. GDP, private consumption and investment are persistently higher. The superior performance is associated with more expansionary fiscal policy, which hinges critically on larger fiscal space and escape clauses. We rationalize the findings in a quantitative model of sovereign default. The model replicates the empirical dynamics and shows that tight fiscal rules create fiscal space in good times that can be used in bad times for deficit-spending.

Keywords: Fiscal policy; fiscal regimes; natural disasters (search for similar items in EconPapers)
JEL-codes: C32 E32 E62 H50 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/242330/1/vfs-2021-pid-48376.pdf (application/pdf)

Related works:
Working Paper: Committed to Flexible Fiscal Rules (2021)
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:zbw:vfsc21:242330

Access Statistics for this paper

More papers in VfS Annual Conference 2021 (Virtual Conference): Climate Economics from Verein für Socialpolitik / German Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().