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Measurement of fiscal rules: Introducing the application of partially ordered set (POSET) theory

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  • Badinger, Harald
  • Reuter, Wolf Heinrich

Abstract

Data on (economic) institutions are often available only as observations on ordinal, inherently incomparable properties, which are then typically aggregated to a composite index in the empirical social science literature. From a methodological perspective, the present paper advocates the application of partially ordered set (POSET) theory as an alternative approach. Its main virtue is that it takes the ordinal nature of the data seriously and dispenses with the unavoidably subjective assignment of weights to incomparable properties, maintains a high standard of objectivity, and can be applied in various fields of economics. As an application, the POSET approach is then used to calculate new indices on the stringency of fiscal rules for 81 countries over the period 1985–2012 based on recent data by IMF (2012). The derived measures of fiscal rules are used to test their significance for public finances in a fiscal reaction function and compare the POSET with the composite index approach.

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  • Badinger, Harald & Reuter, Wolf Heinrich, 2015. "Measurement of fiscal rules: Introducing the application of partially ordered set (POSET) theory," Journal of Macroeconomics, Elsevier, vol. 43(C), pages 108-123.
    • Handle: RePEc:eee:jmacro:v:43:y:2015:i:c:p:108-123
    DOI: 10.1016/j.jmacro.2014.09.005
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    3. Alberto Arcagni & Laura Cavalli & Marco Fattore, 2021. "Partial Order Algorithms for the Assessment of Italian Cities Sustainability," Working Papers 2021.01, Fondazione Eni Enrico Mattei.
    4. Niklas Potrafke, 2023. "The Economic Consequences of Fiscal Rules," CESifo Working Paper Series 10765, CESifo.
    5. Arcagni, Alberto & Cavalli, Laura & Fattore, Marco, 2021. "Partial Order Algorithms for the Assessment of Italian Cities Sustainability," FEEM Working Papers 309036, Fondazione Eni Enrico Mattei (FEEM).
    6. Alberto Arcagni & Elisa Barbiano di Belgiojoso & Marco Fattore & Stefania M. L. Rimoldi, 2019. "Multidimensional Analysis of Deprivation and Fragility Patterns of Migrants in Lombardy, Using Partially Ordered Sets and Self-Organizing Maps," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 141(2), pages 551-579, January.
    7. Ionel Bostan & Carmen Toderașcu & Anca Florentina Gavriluţă (Vatamanu), 2018. "Challenges and Vulnerabilities on Public Finance Sustainability. A Romanian Case Study," JRFM, MDPI, vol. 11(3), pages 1-24, September.
    8. Olegs Tkacevs, 2020. "Secular Decline in Public Investment: are National Fiscal Rules to Blame?," Working Papers 2020/04, Latvijas Banka.
    9. Reuter, Wolf Heinrich & Tkačevs, Oļegs & Vilerts, Kārlis, 2018. "On the design of stabilising fiscal rules," Working Papers 11/2018, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    10. Dimitra Mitsi & Constantina Kottaridi, 2022. "Fiscal and non-fiscal institutional context effects and foreign direct investment: empirical evidence in developing countries," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 72(1-2), pages 11-33, January-J.
    11. Stefania M. L. Rimoldi & Alberto Arcagni & Marco Fattore & Laura Terzera, 2022. "Social and Material Vulnerability of the Italian Municipalities: Comparing Alternative Approaches," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 161(2), pages 523-540, June.
    12. Harald Badinger & Wolf Heinrich Reuter, 2017. "Determinants of fiscal rules," Applied Economics Letters, Taylor & Francis Journals, vol. 24(3), pages 154-158, February.
    13. Harald Badinger & Aurélien Fichet de Clairfontaine & Wolf Heinrich Reuter, 2017. "Fiscal Rules and Twin Deficits: The Link between Fiscal and External Balances," The World Economy, Wiley Blackwell, vol. 40(1), pages 21-35, January.
    14. Klaus Schmidt-Hebbel, 2019. "Macroeconomic Institutions: Lessons from World Experience for MENA Countries," Working Papers 1311, Economic Research Forum, revised 21 Aug 2019.
    15. Christofzik, Désirée & Feld, Lars P. & Reuter, Wolf Heinrich & Yeter, Mustafa, 2018. "Uniting European fiscal rules: How to strenghten the fiscal framework," Working Papers 04/2018, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.

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    More about this item

    Keywords

    Partially ordered set theory (POSET); Index functions; Fiscal rules; Public finances;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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