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The elusive costs and the immaterial gains of fiscal constraints

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  • Fabio Canova
  • Evi Pappa

Abstract

We study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 US states. Fiscal constraints are characterized with a number of indicators and volatility and correlations are computed in several ways. The second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar. Excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place. Creative budget accounting may account for the results.

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File URL: http://eprints.lse.ac.uk/518/
File Function: Open access version.
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Bibliographic Info

Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 518.

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Length: 30 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:ehl:lserod:518

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Web page: http://www.lse.ac.uk/
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Related research

Keywords: Fiscal restrictions; excessive debt; business cycles; US states. JEL classification codes : E3; E5; H7;

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References

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Citations

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Cited by:
  1. Beetsma, Roel & Giuliodori, Massimo, 2009. "The Macroeconomic Costs and Benefits of the EMU and other Monetary Unions: An Overview of Recent Research," CEPR Discussion Papers 7500, C.E.P.R. Discussion Papers.
  2. Marco Buti & Jo�o Nogueira Martins & Alessandro Turrini, 2007. "From Deficits to Debt and Back: Political Incentives under Numerical Fiscal Rules," CESifo Economic Studies, CESifo, vol. 53(1), pages 115-152, March.
  3. Sohrab Rafiq, 2013. "The Growth and Stabilization Properties of Fiscal Policy in Malaysia," IMF Working Papers 13/149, International Monetary Fund.
  4. Evi Pappa, 2004. "The unbearable tightness of being in a monetary union : fiscal restrictions and regional stability," LSE Research Online Documents on Economics 510, London School of Economics and Political Science, LSE Library.
  5. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2009. "The international dimension of productivity and demand shocks in the U.S. economy," Working Paper Series 2009-09, Federal Reserve Bank of San Francisco.
  6. Evi Pappa, 2009. "The effects of fiscal expansions: an international comparison," Working Papers 409, Barcelona Graduate School of Economics.
  7. Marina Azzimonti, 2013. "The political economy of balanced budget amendments," Business Review, Federal Reserve Bank of Philadelphia, issue Q1, pages 11-20.
  8. Stefano Gnocchi, 2013. "Monetary Commitment and Fiscal Discretion: The Optimal Policy Mix," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(2), pages 187-216, April.
  9. Markus Kirchner & Jacopo Cimadomo & Sebastian Hauptmeier, 2010. "Transmission of Government Spending Shocks in the Euro Area: Time Variation and Driving Forces," Tinbergen Institute Discussion Papers 10-021/2, Tinbergen Institute.
  10. Marcela Eslava, 2011. "The Political Economy Of Fiscal Deficits: A Survey," Journal of Economic Surveys, Wiley Blackwell, vol. 25(4), pages 645-673, 09.

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