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The elusive costs and the immaterial gains of fiscal constraints

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  • Canova, Fabio
  • Pappa, Evi

Abstract

We study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 US states. Fiscal constraints are characterized with a number of indicators and volatility and correlations are computed in several ways. The second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar. Excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place. Creative budget accounting may account for the results.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 90 (2006)
Issue (Month): 8-9 (September)
Pages: 1391-1414

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Handle: RePEc:eee:pubeco:v:90:y:2006:i:8-9:p:1391-1414

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Web page: http://www.elsevier.com/locate/inca/505578

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Citations

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Cited by:
  1. Buti, Marco & Martins, Joao Nogueira & Turrini, Alessandro Antonio, 2006. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CEPR Discussion Papers 5809, C.E.P.R. Discussion Papers.
  2. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, 09.
  3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2009. "The international dimension of productivity and demand shocks in the U.S. economy," Working Paper Series 2009-09, Federal Reserve Bank of San Francisco.
  4. Marina Azzimonti, 2013. "The political economy of balanced budget amendments," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 11-20.
  5. Beetsma, Roel & Giuliodori, Massimo, 2009. "The Macroeconomic Costs and Benefits of the EMU and other Monetary Unions: An Overview of Recent Research," CEPR Discussion Papers 7500, C.E.P.R. Discussion Papers.
  6. Sohrab Rafiq, 2013. "The Growth and Stabilization Properties of Fiscal Policy in Malaysia," IMF Working Papers 13/149, International Monetary Fund.
  7. Evi Pappa, 2004. "The unbearable tightness of being in a monetary union : fiscal restrictions and regional stability," LSE Research Online Documents on Economics 510, London School of Economics and Political Science, LSE Library.
  8. repec:dgr:uvatin:2010021 is not listed on IDEAS
  9. Stefano Gnocchi, 2013. "Monetary Commitment and Fiscal Discretion: The Optimal Policy Mix," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 187-216, April.
  10. Evi Pappa, 2009. "The effects of fiscal expansions: an international comparison," Working Papers 409, Barcelona Graduate School of Economics.

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