Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/193674 
Year of Publication: 
2018
Series/Report no.: 
Arbeitspapier No. 11/2018
Publisher: 
Sachverständigenrat zur Begutachtung der Gesamtwirtschaftlichen Entwicklung, Wiesbaden
Abstract: 
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.
Subjects: 
fiscal rules
fiscal policy volatility
panel data
compliance
JEL: 
C23
E62
E32
H60
Document Type: 
Working Paper

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