Do fiscal rules cause budgetary outcomes?

Krogstrup, Signe; Wälti, Sébastien

doi:10.1007/s11127-008-9285-y

Cited by 93 publications

(62 citation statements)

References 20 publications

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“…Several other applications reported both fe and fevd results (e.g. Caporale et al, 2009;Mitze, 2009;Krogstrup and Wälti, 2008). In the studies we examined, the fe t-statistics were consistently smaller than those reported for fevd time-varying variablesand often much smaller -except for few cases affected by robust standard error formulae.…”

Section: Variance Formulaementioning

confidence: 58%

On the Fixed-Effects Vector Decomposition

Breusch

Ward²,

Nguyen³

et al. 2011

Polit. anal.

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This paper analyses the properties of the fixed-effects vector decomposition estimator, an emerging and popular technique for estimating time-invariant variables in panel data models with unit effects. This estimator was initially motivated on heuristic grounds, and advocated on the strength of favorable Monte Carlo results, but with no formal analysis. We show that the three-stage procedure of this decomposition is equivalent to a standard instrumental variables approach, for a specific set of instruments. The instrumental variables representation facilitates the present formal analysis which finds: (1) The estimator reproduces exactly classical fixed-effects estimates for time-varying variables. (2) The standard errors recommended for this estimator are too small for both time-varying and time-invariant variables. (3) The estimator is inconsistent when the time-invariant variables are endogenous. (4) The reported sampling properties in the original Monte Carlo evidence are incorrect. (5) We recommend an alternative shrinkage estimator that has superior risk properties to the decomposition estimator, unless the endogeneity problem is known to be small or no relevant instruments exist.

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Section: Variance Formulaementioning

confidence: 58%

On the Fixed-Effects Vector Decomposition

Breusch

Ward²,

Nguyen³

et al. 2011

Polit. anal.

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“…revenues are higher than expected (i.e., in expansions), they should not be used to increase expenditure 8 . In the next sub-section I present a model that incorporates these issues.…”

Section: Page 3 Of 10mentioning

confidence: 90%

“…The increase of fiscal rules from fewer than five countries in the 1970s and 1980s to 30 countries after the 1990s [3] may partially be explained by the effectiveness of numerical fiscal rules in curtailing budget deficits in different parts of the world at different levels of government, such as, USA [4][5][6], Latin America [7] and Switzerland [8] 3 .…”

Section: Introductionmentioning

confidence: 99%

Optimal Design of New Generation Fiscal Rules: Coping with the Business Cycle and Discretionary Tax Reductions

Strawczynski¹

2015

Bus Eco J

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While business cycles are crucial for determining the dynamics of government budget deficits, it is rare to find an analysis of optimal fiscal rules that are designed to cope with the asymmetric behavior of fiscal variables during the cycle. In this paper I characterize the dynamics of budget deficits along the cycle: i) in recessions marginal propensity to spend is higher than the coefficient of marginal tax revenues, causing an increase of the deficit over GDP; ii) in expansions tax revenues soar allowing for a deficit reduction; however, marginal spending is still high and consequently a full cycle implies an increase in the deficit. Then, I present a model in which fiscal rules are designed to cope with a political bias that is based on two components: the cyclical bias and discretionary tax reductions. According to my analysis, the new generation fiscal rules should be based on a combination of expenditure and revenue rules, which are newer than budget deficit rules and are becoming widespread. According to my empirically calibrated simulation, this combination of rules succeeds on avoiding the political bias and is more cycle-friendly than a budget deficit rule.1 Another source for political manipulations is tax exemptions, usually given to firms to avoid corporate taxes. Studying these changes is beyond the scope of the present paper. 2 Potentially V.A.T. reductions can be more popular than direct tax reductions since consumption is related to all individuals in society. However, a high income or corporate statutory tax reduction is more attractive for politicians than a small statutory V.A.T. reduction, because of two reasons: i) the visibility of the statutory tax reduction; ii) the income and corporate tax reduction can be targeted on the median voter. 3 See also Guichard et al. [13], who found that both expenditure and budget rules anchor successful fiscal consolidations. 4 Kopits [14] provides a list of arguments for and against budget rules.5 From a neo-classical point of view, balance budget rules may impose costs due to a sub-optimal path of tax rates [15].

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“…La rapide diffusion de ce type d'institution a permis l'émer-gence d'une littérature empirique exploitant des données multipays visant à évaluer 14. La Suisse présente également des institutions budgétaires permettant d'établir une relation causale entre règles et déficits (Krogstrup et Wälti, 2008). Dans le cas des épisodes les plus importants, on note une utilisation plus répandue des règles s'appliquant aux dépenses budgé-taires.…”

Section: Les Mesures De L'équilibre Des Finances Publiques à Court Termeunclassified

Les règles budgétaires dans les provinces canadiennes : nomenclatures et éléments d’analyse

Farvaque

Foucault

Joanis

2014

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RÉSUMÉ -Cet article fait le point sur la question des règles budgétaires, qui occupe une place centrale dans les débats de politiques publiques sur la résorption éventuelle des déficits hérités de la Grande Récession. Il revient d'abord rapidement sur la littérature théorique relative aux règles budgétaires. Il dresse ensuite une nomenclature des règles budgétaires en vigueur dans les provinces canadiennes. La nomenclature proposée est plus fine que celle existant dans la littérature et elle se fonde sur les travaux récents menés sur les États américains. Le menu des options de politiques publiques disponibles dans le contexte canadien est enfin évalué, afin d'examiner les performances relatives des diverses règles existantes.

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Do fiscal rules cause budgetary outcomes?

Cited by 93 publications

References 20 publications

On the Fixed-Effects Vector Decomposition

On the Fixed-Effects Vector Decomposition

Optimal Design of New Generation Fiscal Rules: Coping with the Business Cycle and Discretionary Tax Reductions

Les règles budgétaires dans les provinces canadiennes : nomenclatures et éléments d’analyse

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