Template-Type: ReDIF-Paper 1.0
Author-Name: Wolf Heinrich Reuter
Author-X-Name-First: Wolf Heinrich
Author-X-Name-Last: Reuter
Author-Workplace-Name: German Council of Economic Experts
Author-Name: Olegs Tkacevs
Author-X-Name-First: Olegs
Author-X-Name-Last: Tkacevs
Author-Workplace-Name: Bank of Latvia
Author-Name: Karlis Vilerts
Author-X-Name-First: Karlis
Author-X-Name-Last: Vilerts
Author-Workplace-Name: Bank of Latvia
Title: On the design of stabilising fiscal rules
Abstract: Utilising data of the EU28 Member States for the period 1996–2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, e.g. be budget balance rules that set ceilings in cyclically adjusted terms or expenditure rules that set a limit relative to potential instead of current output. Furthermore, the stringency of fiscal rules amplifies their stabilising effect. Actual year-to-year compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with year-to-year. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy.
Creation-Date: 2018-12-27
File-URL: https://www.bank.lv/images/stories/pielikumi/publikacijas/petijumi/wp_5-2018_en.pdf
File-Format: Application/pdf
File-URL: https://www.macroeconomics.lv/sites/default/files/2018-12/wp_on%20the%20design%20of%20stabilising%20fiscal%20rules.pdf
File-Format: Application/pdf
Number: 2018/05
Classification-JEL: C23, E62, E32, H60
Keywords: fiscal rules, fiscal policy volatility, panel data, compliance
X-File-Ref: https://repec.bank.lv/refs/wpaper201805.txt
Handle: RePEc:ltv:wpaper:201805