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The Impact of Fixed Exchange Rates on Fiscal Discipline

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  • Makram El‐Shagi

Abstract

In this paper, it is shown that, contrary to standard arguments, fiscal discipline is not substantially enhanced by a fixed exchange rate regime. This study is based on data from 116 countries collected from 1975 to 2004 and uses various estimation techniques for dynamic panel data, in particular a GMM estimation in the tradition of Arellano and Bover (1995), and Blundell and Bond (1998). Contrary to previous papers on this topic, the present paper takes into account that the consequences of a new exchange rate regime do not necessarily fully manifest immediately.
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Suggested Citation

  • Makram El‐Shagi, 2011. "The Impact of Fixed Exchange Rates on Fiscal Discipline," Scottish Journal of Political Economy, Scottish Economic Society, vol. 58(5), pages 685-710, November.
    • Handle: RePEc:bla:scotjp:v:58:y:2011:i:5:p:685-710
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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • O23 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development

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