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Consumption smoothing in a balanced budget regime

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  • Persson, Lovisa

    ()
    (Uppsala Center for Fiscal Studies)

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    Abstract

    I investigate consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive during the time period 2001-2011 when the BBR was in place. A one percentage increase in predicted current revenues leads to a 0.74-0.76 percentage increase in current consumption. I use scal indicators - the level of own funds and net operating surplus - as proxies for budget balance boundness. Municipalities that perform well in both these scal areas are more smoothing than municipalities that do not perform well in either, implying that budget balance plays a role for consumption smoothing behavior. However, consumption sensitivity has decreased in the aggregate since the implementa- tion of the BBR. A possible story is that municipalities were primarily upward sensitive before the BBR, and primarily downward sensitive after the BBR. This explanation also ts the descriptive picture that the aggregate surplus in the sector has turned to positive from negative since the BBR implementation.

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    Bibliographic Info

    Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2013:12.

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    Length: 39 pages
    Date of creation: 01 Oct 2013
    Date of revision:
    Handle: RePEc:hhs:uufswp:2013_012

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    Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
    Phone: + 46 18 471 25 00
    Fax: + 46 18 471 14 78
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    Web page: http://www.nek.uu.se/
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    Related research

    Keywords: Local public finance; Balanced budget rules; Consumption smoothing; Fiscal consolidation; Fiscal institutions;

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    13. David Roodman, 2007. "A Note on the Theme of Too Many Instruments," Working Papers 125, Center for Global Development.
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