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Fiscal rules to the test: The impact of the Spanish expenditure rule

Author

Listed:
  • Herrero-Alcalde, Ana
  • Martín-Román, Javier
  • Tránchez-Martín, José Manuel
  • Moral-Arce, Ignacio

Abstract

Despite the large spread of fiscal rules around the world, there is still not enough evidence of their effectiveness in ensuring fiscal sustainability. Furthermore, there is little evidence of the impact of expenditure rules in countries’ fiscal performance. This paper evaluates the effectiveness of the Spanish expenditure rule that has been in force since 2012 in controlling the growth of public expenditure. We use a synthetic control methodology to analyze the impact of the rule on the evolution of current and primary expenditure within Spanish public administrations (2001–2018), avoiding the potential endogeneity problems of traditional econometric approaches. Overall, we find that the expenditure rule has largely improved budget sustainability by limiting both current and primary expenditure. These results are robust to different levels of government.

Suggested Citation

  • Herrero-Alcalde, Ana & Martín-Román, Javier & Tránchez-Martín, José Manuel & Moral-Arce, Ignacio, 2024. "Fiscal rules to the test: The impact of the Spanish expenditure rule," European Journal of Political Economy, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:poleco:v:81:y:2024:i:c:s017626802400003x
    DOI: 10.1016/j.ejpoleco.2024.102501
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    Keywords

    Fiscal rules; Government expenditure; Public debt; Impact evaluation; Synthetic control methods;
    All these keywords.

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures

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