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The effects of fiscal institutions on fiscal adjustments

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  • Christos Chrysanthakopoulos

    (University of Patras)

  • Athanasios Tagkalakis

    (Bank of Greece, University of Patras and Hellenic Parliamentary Budget Office)

Abstract

Using a panel of 40 advanced economies over the period 1990-2020 this paper investigates the effect of various characteristics of fiscal councils and fiscal rules on the probability of starting a fiscal adjustment, as well as on the probability that this fiscal adjustment will be successful. The relevance of fiscal institutions’ characteristics is verified when considering alternative definitions of successful fiscal adjustments. Our results are robust after controlling for endogeneity of fiscal institutions’ characteristics (by the Augmented Inverse Probability Weighted estimator) with fiscal adjustments. We find that a fiscal rule with well specified escape clause, that has multi-year expenditure ceilings and excludes public investment can induce a successful fiscal adjustment. A fiscal council with enhanced remit, independence and accountability and extended tasks and instruments increase the probability of successful fiscal adjustments. Finally, we find that a fiscal council with extended tasks and instruments increase the probability of successful fiscal adjustments based on spending cuts.

Suggested Citation

  • Christos Chrysanthakopoulos & Athanasios Tagkalakis, 2022. "The effects of fiscal institutions on fiscal adjustments," Working Papers 305, Bank of Greece.
    • Handle: RePEc:bog:wpaper:305
    DOI: 10.52903/wp2022305
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    More about this item

    Keywords

    Fiscal policy; Fiscal councils’ characteristics; Fiscal rules’ characteristics; Fiscal adjustments;
    All these keywords.

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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