Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/278524 
Year of Publication: 
2023
Series/Report no.: 
Graduate Institute of International and Development Studies Working Paper No. HEIDWP09-2023
Publisher: 
Graduate Institute of International and Development Studies, Geneva
Abstract: 
Should a government have more than one fiscal rule constraining fiscal aggregates? If so, why? In this paper, we present a dynamic general equilibrium model of a small open economy featuring an incumbent government to assess how and why implementing a budget balance rule and a debt anchor rule is non-redundant and welfare-improving. Our findings suggest that the implementation of a combination of fiscal rules is optimally preferred over a single rule, as each rule has a different effect on credibility and fiscal behaviour. While the debt anchor rule prevents the propagation of the negative effects of imperfect fiscal credibility, the operational rule reduces amplification by avoiding overindebtedness and minimizing the welfare-detrimental effects arising from a deficit-biased government.
Subjects: 
Fiscal Rules
Credibility
Deficit Bias
Balanced Budget Rule
Debt Anchor Rule
Fiscal Policy
Welfare
JEL: 
E61
E62
H60
H63
F41
Document Type: 
Working Paper

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