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The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization

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Author Info
Jonathan Millar
Abstract

Budget rules can be defined as legislated or constitutional constraints on government deficits, taxes, expenditures, or debt. This paper reviews the budget rules recently legislated in six of Canada's provinces and both of its territories, as well as budget rules in other OECD countries. In theory, budget rules appear to be justified if their cost in terms of foregone fiscal stabilization is outweighed by benefits such as discouraging government debt accumulation and reduced risk premiums on government borrowing. Recent empirical evidence on the effectiveness of budget rules and their consequences for fiscal stabilization is examined in detail. In light of this evidence, the paper assesses the possible implications of budget-rule legislation in Canada on fiscal performance, macroeconomic stabilization, and monetary policy.

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File URL: http://www.bankofcanada.ca/en/res/wp/1997/wp97-15.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 97-15.

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Length: 58 pages
Date of creation: 1997
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Handle: RePEc:bca:bocawp:97-15

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Keywords: Fiscal policy;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Alberto Alesina & Roberto Perotti, 1996. "Budget Deficits and Budget Institutions," IMF Working Papers 96/52, International Monetary Fund.
    Other versions:
  2. Barro, Robert J, 1979. "On the Determination of the Public Debt," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 940-71, October. [Downloadable!] (restricted)
  3. Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Working Papers 4765, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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    • Christina D. Romer & David H. Romer, 1994. "What Ends Recessions?," NBER Chapters, in: NBER Macroeconomics Annual 1994, Volume 9, pages 13-80 National Bureau of Economic Research, Inc. [Downloadable!]
  4. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : II. New directions," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 309-341. [Downloadable!] (restricted)
  5. Corsetti, Giancarlo & Roubini, Nouriel, 1992. "Tax Smoothing Discretion Versus Balanced Budget Rules in the Presence of Politically Motivated Fiscal Deficits: The Design of Optimal Fiscal Rules for Europe after 1992," CEPR Discussion Papers 682, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  6. Gramlich, Edward M, 1990. "U.S. Federal Budget Deficits and Gramm-Rudman-Hollings," American Economic Review, American Economic Association, vol. 80(2), pages 75-80, May. [Downloadable!] (restricted)
  7. Ronald J. Shadbegian, 1996. "Do Tax And Expenditure Limitations Affect The Size And Growth Of State Government?," Contemporary Economic Policy, Western Economic Association International, vol. 14(1), pages 22-35, 01. [Downloadable!] (restricted)
  8. Cheung, S., 1996. "Provincial Credit Rating in Canada: An Ordered Probit Analysis," Working Papers 96-6, Bank of Canada. [Downloadable!]
  9. Alberto Alesina & Tamim Bayoumi, 1996. "The Costs and Benefits of Fiscal Rules: Evidence from U.S. States," NBER Working Papers 5614, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  10. von Hagen, Jurgen & Harden, Ian J., 1995. "Budget processes and commitment to fiscal discipline," European Economic Review, Elsevier, vol. 39(3-4), pages 771-779, April. [Downloadable!] (restricted)
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  11. Canzoneri, Matthew B & Diba, Behzad, 1996. "Fiscal Constraints on Central Bank Independence and Price Stability," CEPR Discussion Papers 1463, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  12. Henning Bohn & Robert P. Inman, 1996. "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States," NBER Working Papers 5533, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-59, November. [Downloadable!] (restricted)
  14. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August. [Downloadable!] (restricted)
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  15. James M. Poterba, 1997. "Do Budget Rules Work?," NBER Working Papers 5550, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  16. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers 1088, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Eichengreen, Barry & Bayoumi, Tamim, 1994. "The political economy of fiscal restrictions: Implications for Europe from the United States," European Economic Review, Elsevier, vol. 38(3-4), pages 783-791, April. [Downloadable!] (restricted)
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  18. Charles L. Weise, 1996. "Severity Of Economic Fluctuations Under A Balanced Budget Amendment," Contemporary Economic Policy, Western Economic Association International, vol. 14(2), pages 26-40, 04. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Amano, Robert & Coletti, Don & Macklem, Tiff, 1999. "Monetary Rules When Economic Behaviour Changes," Working Papers 99-8, Bank of Canada. [Downloadable!]
    Other versions:
  2. Jean-Paul Lam & William Scarth, 2002. "Alternative Public Spending Rules and Output Volatility," Macroeconomics 0211005, EconWPA. [Downloadable!]
    Other versions:
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