Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93748
Authors: 
von Hagen, Jürgen
Wolff, Guntram B.
Year of Publication: 
2006
Series/Report no.: 
SFB/TR 15 Discussion Paper 148
Abstract: 
Fiscal rules, such as the Excessive Deficit Procedure and the Stability and Growth Pact (SGP), aim at constraining government behavior. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this depends on the reputation cost for the government and the economic cost of sticking to the rule. We provide empirical evidence of creative accounting in the European Union. We find that the SGP rules have induced governments to use stock-flow adjustments, a form of creative accounting, to hide deficits. The tendency to substitute stock-flow adjustments for budget deficits is especially strong for the cyclical component of the deficit, as in times of recession the cost of reducing the deficit is particularly large.
Subjects: 
Fiscal rules
stock-flow adjustments
debt-deficit adjustments
stability and growth pact
excessive deficit procedure
ESA 95
JEL: 
E62
H61
H62
H63
H70
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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