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Rule-Based Versus Discretionary Fiscal Policy

Author

Listed:
  • Tomasz Grabia

    (Department of Microeconomics Faculty of Economics and Sociology University of Lodz)

Abstract

Fiscal policy can be of a discretionary or rule-based nature. This article discuses selected examplesof fiscal rules as well as presents the advantages and disadvantages of following them. The aim of the article is to solve dilemmas about the positive and negative consequences of strict regulations of contemporary fiscal policy. Therefore, a hypothesis is tested concerning whether the following of rules in macroeconomic policy is a more beneficial solution than carry in goutadiscretionary policy. The hypothesis was not clearly verified. On the one hand, it was stated that it is usually more beneficial to follow standard rulesdue tohigher reliability formarkets. On the otherhand, that entails lower flexibility, which may be especially disadvantageous during a crisis.

Suggested Citation

  • Tomasz Grabia, 2016. "Rule-Based Versus Discretionary Fiscal Policy," OLSZTYN ECONOMIC JOURNAL, University of Warmia and Mazury in Olsztyn, Faculty of Economic Sciences, vol. 11(3), pages 265-276, August.
    • Handle: RePEc:ole:journl:v:11:y:2016:i:3:p:265-276
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    File URL: http://www.uwm.edu.pl/wne/podstrony/oej1/wydania/eko11_16_3.pdf
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    More about this item

    Keywords

    Maastricht Treaty; fiscal rules; discretionary fiscal policy; credibility of fiscal policy; flexibility of fiscal policy;
    All these keywords.

    JEL classification:

    • A1 - General Economics and Teaching - - General Economics
    • G0 - Financial Economics - - General
    • E0 - Macroeconomics and Monetary Economics - - General

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