The Case for Fiscal Rules

Harald Badinger, Wolf Heinrich Reuter

Publication: Working/Discussion PaperWU Working Paper

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Abstract

This paper estimates the effects of fiscal institutions on fiscal policy outcomes, addressing issues related to measurement and endogeneity in a novel way. Recently developed indices, based on partially ordered set theory, are used to quantify the stringency of fiscal rules. Identification of their effects is achieved by exploiting the exogeneity of institutional variables (checks and balances, government fragmentation, inflation targeting), which are found to be relevant determinants of fiscal rules. Our two-stage least squares estimates for (up to) 79 countries over the period 1985-2012 provide strong evidence that countries with more stringent fiscal rules have higher fiscal balances (lower deficits), lower interest rate spreads on government bonds, and lower output volatility. (authors' abstract)
Original languageEnglish
DOIs
Publication statusPublished - 2015

Publication series

SeriesDepartment of Economics Working Paper Series
Number204

Austrian Classification of Fields of Science and Technology (ÖFOS)

  • 502025 Econometrics
  • 502047 Economic theory
  • 506004 European integration
  • 502003 Foreign trade
  • 502018 Macroeconomics

WU Working Paper Series

  • Department of Economics Working Paper Series

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