The Effect of Fiscal Rules on Public Investment if Budget Deficits are Politically Motivated

Arbeitspapier

Uncertainty about the future preferences of the government may induce policy makers to run excessive budget deficits. As a solution to this problem, economists have proposed to impose a binding debt rule. In this paper we argue that a binding debt rule does not eliminate the distortions due to strategic behaviour of politicians. Rather, strategic manipulation shifts from public debt to public investment. As an alternative, we examine the effects of a capital borrowing rule which permits the government to run a budget deficit equal to the amount of public investment. We show that this rule effectively eliminates strategic behaviour.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. 97-125/1

Classification and Topics

• Classification: Wirtschaft ; Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior ; Fiscal Policy ; National Budget; Budget Systems ; National Deficit; Surplus
• Subject: fiscal rules ; budget deficits ; public investment ; Öffentliche Investition ; Haushaltsdefizit ; Finanzpolitik ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Dur, Robert A.J. ; Peletier, Ben D. ; Swank, Otto H.
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 1997

Further information

• Handle: http://hdl.handle.net/10419/85615
• Last update: 10.03.2025, 11:43 AM CET