Deficit Limits and Fiscal Rules for Dummies
Abstract
The paper shows that common fiscal rules, such as a limit to the deficit-output ratio, induce an “escape clause”–type fiscal policy, similar to that studied for monetary policy by Flood and Isard (1988 and 1989) and Lohmann (1992): The government resorts to an active stabilization (for example, countercyclical) policy only during “exceptional times” by running deficits in recession phases and surpluses during economic booms. In contrast, it optimally chooses a procyclical policy in intermediate states of the economy, for example, by raising the budget deficit when output improves. Because the optimal fiscal reaction function in the presence of fiscal rules is not monotonous in output, the standard estimates that assume linearity are prone to a serious bias, and the conclusions on the pro- or countercyclical properties of fiscal policy found in the literature are likely to be unreliable. IMF Staff Papers (2007) 54, 455–473. doi:10.1057/palgrave.imfsp.9450015Download Info
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic Info
Article provided by Palgrave Macmillan in its journal IMF Staff Papers.
Volume (Year): 54 (2007)
Issue (Month): 3 (July)
Pages: 455-473
Contact details of provider:
Web page: http://www.palgrave-journals.com/
Order Information:
Postal: Palgrave Macmillan Journals, Subscription Department, Houndmills, Basingstoke, Hampshire RG21 6XS, UK
Email:
Web: http://www.palgrave-journals.com/pal/subscribe/index.html
Related research
Keywords:References
No references listed on IDEASYou can help add them by filling out this form.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Carmignani, Fabrizio, 2010. "Cyclical fiscal policy in Africa," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 254-267, March.
- Fabrizio Carmignani, . "Cyclical fiscal policy in developing countries: the case of Africa," MRG Discussion Paper Series 2408, School of Economics, University of Queensland, Australia.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:pal:imfstp:v:54:y:2007:i:3:p:455-473For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elizabeth Gale).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.