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Fiscal Rules, Fiscal Space, and the Procyclicality of Fiscal Policy

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  • Carolin Nerlich
  • Wolf Heinrich Reuter

Abstract

We analyze the interaction of fiscal rules and fiscal space. We find strong evidence for fiscal rules being associated with higher fiscal space for the EU27 countries for the period 1990-2014. Furthermore, the analysis shows that countries with more fiscal space tend to have higher discretionary expenditures, but that this effect is significantly reduced if fiscal rules are in place. Moreover, we find support for the hypothesis that the procyclicality of fiscal policy is significantly higher in an environment of ample fiscal space and that fiscal rules can help lowering this procyclicality.

Suggested Citation

  • Carolin Nerlich & Wolf Heinrich Reuter, 2016. "Fiscal Rules, Fiscal Space, and the Procyclicality of Fiscal Policy," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 72(4), pages 421-452, December.
    • Handle: RePEc:mhr:finarc:urn:sici:0015-2218(201612)72:4_421:frfsat_2.0.tx_2-k
    DOI: 10.1628/001522108X14785541072981
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    3. Ulrich Ekouala Makala, 2022. "An empirical study of public debt sustainability based on fiscal fatigue and fiscal space in CEMAC countries," International Studies of Economics, John Wiley & Sons, vol. 17(3), pages 334-370, September.
    4. J. Stephen Ferris & Bharatee Bhusana Dash, 2019. "Expenditure visibility and voter memory: a compositional approach to the political budget cycle in Indian states, 1959–2012," Economics of Governance, Springer, vol. 20(2), pages 129-157, June.
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    6. Marcella Alifia Kuswana Putri & Chandra Utama & Ivantia Savitri Mokoginta, 2022. "The Impact Of Fiscal Space On Indonesia’S Fiscal Behavior," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 25(2), pages 235-256, August.
    7. António Afonso & João Tovar Jalles & Ana Venâncio, 2024. "A tale of government spending efficiency and trust in the state," Public Choice, Springer, vol. 200(1), pages 89-118, July.
    8. Svetlana Demidova & Yuliya Tyurina & Anastasia Kulachinskaya & Olga Buzdalina & Igor V. Ilin & Victoriya Razletovskaia & Chulpan A. Misbakhova, 2024. "An Assessment of the Effectiveness and Scale of Tax Expenditures to Support Investments and Priority Sectors in G20 Countries," Economies, MDPI, vol. 12(6), pages 1-26, June.
    9. Adam Pigoń & Michał Ramsza, 2022. "A Comparison of German, Swiss, and Polish Fiscal Rules Using Monte Carlo Simulations," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 4, pages 17-41.
    10. Combes, Jean-Louis & Minea, Alexandru & Sow, Moussé, 2017. "Is fiscal policy always counter- (pro-) cyclical? The role of public debt and fiscal rules," Economic Modelling, Elsevier, vol. 65(C), pages 138-146.

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    More about this item

    Keywords

    fiscal space; fiscal rules; discretionary fiscal policy; procyclicality;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General

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