The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization
AbstractBudget 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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Bibliographic InfoPaper provided by Bank of Canada in its series Working Papers with number 97-15.
Length: 58 pages
Date of creation: 1997
Date of revision:
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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
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