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Fiscal rules, fiscal space and procyclical fiscal policy

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  • Nerlich, Carolin
  • Reuter, Wolf Heinrich

Abstract

In this paper we analyse the interaction of fiscal rules and fiscal space. We find strong evidence for fiscal rules being associated with higher fiscal space. 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. A similar effect can be observed for the procyclicality of fiscal policy, which is significantly higher in an environment of ample fiscal space, while this difference is reduced with fiscal rules. Regarding the different types of fiscal rules, we find the strongest results for expenditure rules and to a lesser extent for balanced budget rules, but none for debt rules. JEL Classification: E61, E62, H60

Suggested Citation

  • Nerlich, Carolin & Reuter, Wolf Heinrich, 2015. "Fiscal rules, fiscal space and procyclical fiscal policy," Working Paper Series 1872, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20151872
    Note: 508107
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    discretionary fiscal policy; fiscal rules; fiscal space; 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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