On the design of stabilising fiscal rules

Arbeitspapier

Utilising data of the EU28 Member States for the period 1996-2015, this paper confirms the findings of previous studies that the stipulation of fiscal rules reduces fiscal volatility and consequently contributes to macroeconomic stability. Yet, we document that this result only holds for rules which are designed to be unaffected by the current state of the business cycle, i.e. which are "a-cyclical". Those can, e.g. be budget balance rules that set ceilings in cyclically adjusted terms or expenditure rules that set a limit relative to potential instead of current output. Furthermore, the stringency of fiscal rules amplifies their stabilising effect. Actual year-to-year compliance with fiscal rules seems to play no systematic role, such that effects of the rules can be observed even if they are not complied with year-to-year. Overall, our paper suggests that strong, properly designed numerical rules act as an anchor for fiscal policy makers and contribute to more stable discretionary fiscal policy.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Arbeitspapier ; No. 11/2018

Classification and Topics

• Classification: Wirtschaft ; Single Equation Models; Single Variables: Panel Data Models; Spatio-temporal Models ; Fiscal Policy ; Business Fluctuations; Cycles ; National Budget, Deficit, and Debt: General
• Subject: fiscal rules ; fiscal policy volatility ; panel data ; compliance

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Reuter, Wolf Heinrich ; Tkačevs, Oļegs ; Vilerts, Kārlis
• Event: Veröffentlichung
• (who): Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung
• (where): Wiesbaden
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/193674
• Last update: 10.03.2025, 11:42 AM CET