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Do fiscal rules cause budgetary outcomes?

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Abstract

This paper focuses on the observed empirical relationship between fiscal rules and budget deficits, and examines whether this correlation is driven by an omitted variable, namely voter preferences. We make use of two different estimation methods to capture voter preferences in a panel of Swiss sub-federal jurisdictions. First, we include a recently constructed measure of fiscal preferences. Second, we capture preferences through fixed effects with a structural break as women are enfranchised. We find that fiscal rules continue to have a significant impact on real budget balances.

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Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID Working Papers with number 15-2007.

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Length: 30
Date of creation: May 2007
Date of revision: May 2007
Handle: RePEc:gii:giihei:heiwp15-2007

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Keywords: Fiscal policy; fiscal rules; fiscal institutions; budget deficits; fiscal preferences; endogeneity;

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  1. Lars P. Feld & John G. Matsusaka, 2000. "Budget Referendums and Government Spending: Evidence from Swiss," CESifo Working Paper Series 323, CESifo Group Munich.
  2. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, December.
  3. 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.
  4. James J. Heckman & James M. Snyder, Jr., 1996. "Linear Probability Models of the Demand for Attributes with an Empirical Application to Estimating the Preferences of Legislators," NBER Working Papers 5785, National Bureau of Economic Research, Inc.
  5. 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.
  6. Alois Stutzer & Lukas Kienast, . "Demokratische Beteiligung und Staatsausgaben: Die Auswirkungen des Frauenstimmrechts," IEW - Working Papers 210, Institute for Empirical Research in Economics - University of Zurich.
  7. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  8. 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.
  9. Bohn, Henning & Inman, Robert P., 1996. "Balanced-budget rules and public deficits: evidence from the U.S. states," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 13-76, December.
  10. Poterba, James M, 1996. "Budget Institutions and Fiscal Policy in the U.S. States," American Economic Review, American Economic Association, vol. 86(2), pages 395-400, May.
  11. Gorman, W M, 1980. "A Possible Procedure for Analysing Quality Differentials in the Egg Market," Review of Economic Studies, Wiley Blackwell, vol. 47(5), pages 843-56, October.
  12. John R. Lott & Jr. & Lawrence W. Kenny, 1999. "Did Women's Suffrage Change the Size and Scope of Government?," Journal of Political Economy, University of Chicago Press, vol. 107(6), pages 1163-1198, December.
  13. Signe Krogstrup & Sébastien Wälti, 2007. "Women and Budget Deficits," IHEID Working Papers 13-2007, Economics Section, The Graduate Institute of International Studies, revised Apr 2007.
  14. Feld, Lars P & Kirchgassner, Gebhard, 2001. " Does Direct Democracy Reduce Public Debt? Evidence from Swiss Municipalities," Public Choice, Springer, vol. 109(3-4), pages 347-70, December.
  15. Feld, Lars P. & Matsusaka, John G., 2003. "Budget referendums and government spending: evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(12), pages 2703-2724, December.
  16. Francesco Lagona & Fabio Padovano, 2007. "A nonlinear principal component analysis of the relationship between budget rules and fiscal performance in the European Union," Public Choice, Springer, vol. 130(3), pages 401-436, March.
  17. repec:fth:geneec:99.05 is not listed on IDEAS
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