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A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?

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  • Reicher, Claire

Abstract

Not much cross-country evidence exists on the time-series behavior of individual fiscal instruments in response to the public debt and to output. To remedy this situation, this study provides a set of detailed estimated fiscal reaction functions (or “fiscal rules”) governing these responses for a panel of twenty OECD countries. A number of commonalities and differences emerge. In general, the countries in the panel adjust tax revenues strongly in response to the public debt, and they adjust tax revenues and transfer payments but, interestingly, not tax rates or government purchases, strongly in response to output. Furthermore, a high rate of transfer payments is associated in the cross-section with reduced output volatility. These results support some recent developments in the theoretical literature, namely, an increased emphasis on the effects of countercyclical transfer payments as an anti-cyclical fiscal policy instrument.

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  • Reicher, Claire, 2014. "A set of estimated fiscal rules for a cross-section of countries: Stabilization and consolidation through which instruments?," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 184-198.
    • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:184-198
    DOI: 10.1016/j.jmacro.2014.08.001
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    Cited by:

    1. Plödt, Martin & Reicher, Claire A., 2015. "Estimating fiscal policy reaction functions: The role of model specification," Journal of Macroeconomics, Elsevier, vol. 46(C), pages 113-128.
    2. Combes, Jean-Louis & Minea, Alexandru & Sow, Moussé, 2017. "Is fiscal policy always counter- (pro-) cyclical? The role of public debt and fiscal rules," Economic Modelling, Elsevier, vol. 65(C), pages 138-146.
    3. Oronde Small & Leanora Brown & Gustavo Canavire‐Bacarreza, 2020. "The Fiscal Policy Response To Public Debt In Developing Countries," Contemporary Economic Policy, Western Economic Association International, vol. 38(1), pages 155-165, January.
    4. Schabert, Andreas & Christoffel, Kai, 2015. "Interest rates, money, and banks in an estimated euro area model," Working Paper Series 1791, European Central Bank.
    5. Róbert Oravský & Peter Tóth & Anna Bánociová, 2020. "The Ability of Selected European Countries to Face the Impending Economic Crisis Caused by COVID-19 in the Context of the Global Economic Crisis of 2008," JRFM, MDPI, vol. 13(8), pages 1-17, August.
    6. Lennart Erixon, 2015. "Can fiscal austerity be expansionary in present-day Europe? The lessons from Sweden," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(4), pages 567—601-5, October.
    7. Boeing-Reicher, Claire A. & Caponi, Vincenzo, 2016. "Public Wages, Public Employment, and Business Cycle Volatility: Evidence from U.S. Metro Areas," IZA Discussion Papers 9965, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Fiscal policy; Fiscal rule; Deficits; Taxes; Government purchases; Transfer payments;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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