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Do fiscal rules matter? A survey on recent evidence

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  • Brändle, Thomas

    (University of Basel)

  • Elsener, Marc

Abstract

Fiscal rules are argued to be important for sound and sustainable fiscal policies and have been increasingly adopted over the last 20 years. However, as increased fiscal pressure and fiscal risks urge countries to address the public debt legacy left by recent economic crises, fiscal rules come under greater scrutiny. To inform the debate on fiscal frameworks, this paper presents a comprehensive survey of the empirical literature on the impact of fiscal rules. In particular, we discuss the recent empirical literature that investigates the impact of fiscal rules on various elements related to fiscal performance and beyond. Our survey finds that fiscal rules are associated with improved fiscal performance as approximated by improved budget balances, lower debt and lower public spending volatility. Furthermore, empirical research finds that fiscal rules are related to more accurate budget forecasts and improved sovereign bond ratings. From a macroeconomic perspective, well-designed fiscal rules do not principally undermine public investment and do not increase pro-cyclicality in fiscal-policy making. These results, however, also depend on the broader economic and institutional context. Moreover, there is emerging literature that links fiscal rules to broader outcomes, such as income distribution and political polarisation. We discuss methodological challenges related to identification and point to avenues for future research.

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  • Brändle, Thomas & Elsener, Marc, 2023. "Do fiscal rules matter? A survey on recent evidence," Working papers 2023/07, Faculty of Business and Economics - University of Basel.
    • Handle: RePEc:bsl:wpaper:2023/07
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    16. Amélie Barbier-Gauchard & Kea Baret & Alexandru Minea, 2021. "National fiscal rules and fiscal discipline in the European Union," Applied Economics, Taylor & Francis Journals, vol. 53(20), pages 2337-2359, April.
    17. Chrysanthakopoulos, Christos & Tagkalakis, Athanasios, 2023. "The effects of fiscal institutions on fiscal adjustment," Journal of International Money and Finance, Elsevier, vol. 134(C).
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    More about this item

    Keywords

    Fiscal rules; independent fiscal institutions; public debt; fiscal policy; fiscal sustainability;
    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
    • H1 - Public Economics - - Structure and Scope of Government
    • H6 - Public Economics - - National Budget, Deficit, and Debt

    Statistics

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