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The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization

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  • Jonathan Millar

Abstract

Budget rules can be defined as legislated or constitutional constraints on government deficits, taxes, expenditures, or debt. This paper reviews the budget rules recently legislated in six of Canada's provinces and both of its territories, as well as budget rules in other OECD countries. In theory, budget rules appear to be justified if their cost in terms of foregone fiscal stabilization is outweighed by benefits such as discouraging government debt accumulation and reduced risk premiums on government borrowing. Recent empirical evidence on the effectiveness of budget rules and their consequences for fiscal stabilization is examined in detail. In light of this evidence, the paper assesses the possible implications of budget-rule legislation in Canada on fiscal performance, macroeconomic stabilization, and monetary policy.

Suggested Citation

  • Jonathan Millar, 1997. "The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization," Staff Working Papers 97-15, Bank of Canada.
    • Handle: RePEc:bca:bocawp:97-15
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    2. Pinaki Chakraborty & Bharatee Bhusana Dash, 2017. "Fiscal Reforms, Fiscal Rule, and Development Spending: How Indian States Have Performed?," Public Budgeting & Finance, Wiley Blackwell, vol. 37(4), pages 111-133, December.
    3. Robert Amano & Donald Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    4. Jean-Paul Lam & William Scarth, 2002. "Alternative Public Spending Rules and Output Volatility," Macroeconomics 0211005, University Library of Munich, Germany.
    5. Andrea Ferrero, 2012. "The Advantage of Flexible Targeting Rules," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 863-881, August.
    6. Landon, Stuart & Smith, Constance E., 2007. "Government debt spillovers in a monetary union," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 135-154, August.
    7. George Georgopoulos, 2009. "Measuring regional effects of monetary policy in Canada," Applied Economics, Taylor & Francis Journals, vol. 41(16), pages 2093-2113.
    8. David Longworth & Brian O´Reilly, 2002. "The Monetary Policy Transmission Mechanism and Policy Rules in Canada," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.),Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 13, pages 357-392, Central Bank of Chile.
    9. F. Javier Salinas, 2002. "Accrual Budgeting And Fiscal Consolidation In The Emu," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 193-206, April.
    10. Liu, Lili & Webb, Steven B., 2011. "Laws for fiscal responsibility for subnational discipline : international experience," Policy Research Working Paper Series 5587, The World Bank.
    11. Étienne Farvaque & Martial Foucault & Marcelin Joanis, 2015. "L’endettement public des provinces canadiennes : Les règles d’équilibre budgétaire sont-elles efficaces?," CIRANO Working Papers 2015s-10, CIRANO.
    12. Vikas Dixit, 2016. "Fiscal Rule and Social Sector Spending: A Study of North-East India," India Studies in Business and Economics, in: Swapnendu Banerjee & Vivekananda Mukherjee & Sushil Kumar Haldar (ed.), Understanding Development, edition 1, chapter 11, pages 155-171, Springer.
    13. David Prušvic, 2010. "Evropská fiskální pravidla a jejich účinnost: prvních 15 let [European Fiscal Policy Rules: First 15 Years]," Politická ekonomie, Prague University of Economics and Business, vol. 2010(1), pages 51-69.
    14. Niklas Potrafke, 2023. "The Economic Consequences of Fiscal Rules," CESifo Working Paper Series 10765, CESifo.
    15. Hayal Ayça ŞİMŞEK & Ayşe GÜNAY BEKÂR, 2008. "The Effects of Fiscal Policy Rules on Fiscal Balance: The Perspectives on Turkish Economy," Sosyoekonomi Journal, Sosyoekonomi Society, issue 2008-2.

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    More about this item

    Keywords

    Fiscal policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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