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Issues in the Design of Fiscal Policy Rules

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  • Jonathan Portes
  • Simon Wren-Lewis

Abstract

type="main"> Theory suggests that government should smooth taxes and spending, and adjustments in the level of debt should be gradual. Fiscal rules should therefore relate to deficits rather than debt. Rules should also reflect constraints on monetary policy. In normal times, rules should reflect political and institutional considerations, such as the potential for ‘deficit bias’, and the effectiveness of any fiscal council. For example, governments without a history of bias might target deficits five years ahead. However, if interest rates hit the zero lower bound, fiscal and monetary policy coordination is required, and here fiscal councils can also have an important role.

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  • Jonathan Portes & Simon Wren-Lewis, 2015. "Issues in the Design of Fiscal Policy Rules," Manchester School, University of Manchester, vol. 83, pages 56-86, September.
    • Handle: RePEc:bla:manchs:v:83:y:2015:i::p:56-86
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    File URL: http://hdl.handle.net/10.1111/manc.12118
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    11. J.W. Mason & Arjun Jayadev, 2015. "Lost in Fiscal Space: Some Simple Analytics of Macroeconomic Policy in the Spirit of Tinbergen, Wicksell and Lerner," Working Papers 2015_05, University of Massachusetts Boston, Economics Department.
    12. Vítor Constâncio, 2020. "The return of fiscal policy and the euro area fiscal rule," Working Papers REM 2020/0127, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    13. Vítor Constâncio, 2020. "The Return of Fiscal Policy and the Euro Area Fiscal Rule," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 62(3), pages 358-372, September.
    14. Kuusi Tero, 2018. "Output Gap Uncertainty and the Optimal Fiscal Policy in the EU," Review of Economics, De Gruyter, vol. 69(2), pages 111-146, August.
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    18. Ackon, Kwabena Meneabe, 2018. "Essays In Fiscal Policy And State Dependence Fiscal Policy Innovations Using A New Econometric Approach," MPRA Paper 100739, University Library of Munich, Germany.
    19. Tomomi Miyazaki, 2023. "Comment on “Recursive expectations approach in policymaking” by Professor Keiichiro Kobayashi," International Journal of Economic Policy Studies, Springer, vol. 17(2), pages 399-402, August.
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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