Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/78025 
Year of Publication: 
2011
Series/Report no.: 
Bruegel Working Paper No. 2011/10
Publisher: 
Bruegel, Brussels
Abstract: 
With a unique data set summarizing the quality of rules-based fiscal governance in EU member states, we show that stronger fiscal rules in euro area members reduce sovereign risk premia, in particular in times of market stress. To do so, we develop a model of sovereign spreads that are determined by the probability of default in interaction with the level of risk aversion. Estimation of the model con firms the central predictions. The legal base of the rules and their enforcement mechanisms are the most important dimensions of rules-based fiscal governance.
Subjects: 
fiscal governance
numerical fiscal rules
sovereign spreads
sovereign risk
euro area
JEL: 
E43
E62
G12
H60
H63
Document Type: 
Working Paper
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