This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Deficit Limits, Budget Rules and Fiscal Policy

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Paolo Manasse

Additional information is available for the following registered author(s):

Abstract

The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. I find that limits on deficit-output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in very "good" and very "bad" economic times. As a result, fiscal "reaction functions" are not monotonically related to the state of the economy. Deficit limits are found to exert discipline only provided the limit is tight and the expected sanction large, albeit at a relatively large welfare cost. Moreover, when fiscal choices are made under a veil of ignorance about the output gap, an increase in volatility is likely to raise the level of the budget deficit. Finally, concerning the design of fiscal frameworks, when excessive deficits arise from a political bias, deficit limits should be symmetric and not state-contingent.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.imf.org/external/pubs/ft/wp/2005/wp05120.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/120.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 19 pages
Date of creation: 27 Jun 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/120

Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Email:
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC

Order Information:
Web: http://www.imf.org/external/pubs/pubs/ord_info.htm

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords: Fiscal management ; Budget deficits ; Economic growth ; Economic stabilization ; Economic policy ; Economic models ;

Other versions of this item:

This paper has been announced in the following NEP Reports: References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Feldstein, Martin, 2005. "The euro and the stability pact," Journal of Policy Modeling, Elsevier, vol. 27(4), pages 421-426, June. [Downloadable!] (restricted)
    Other versions:
  2. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Grossman, Gene M & Helpman, Elhanan, 1994. "Protection for Sale," American Economic Review, American Economic Association, vol. 84(4), pages 833-50, September. [Downloadable!] (restricted)
    Other versions:
  4. Bottazzi, Laura & Manasse, Paolo, 2005. "Asymmetric Information and Monetary Policy in Common Currency Areas," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(4), pages 603-21, August.
    Other versions:
  5. Manasse, Paolo, 1996. "Are taxes too low?," Journal of Economic Dynamics and Control, Elsevier, vol. 20(6-7), pages 1263-1288. [Downloadable!] (restricted)
  6. Torsten Persson & Gerard Roland & Guido Tabellini, 2003. "How Do Electoral Rules Shape Party Structures, Government Coalitions, and Economic Policies?," NBER Working Papers 10176, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  7. Massimo Bordignon & Paolo Manasse & Guido Tabellini, 2001. "Optimal Regional Redistribution under Asymmetric Information," American Economic Review, American Economic Association, vol. 91(3), pages 709-723, June. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Candelon, Bertrand & Muysken, Joan & Vermeulen, Robert, 2007. "Fiscal Policy and Monetary Integration in Europe: An Update," Research Memoranda 050, Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization. [Downloadable!]
    Other versions:
  2. Paolo Manasse, 2006. "Procyclical Fiscal Policy: Shocks, Rules, and Institutions - A View From MARS," IMF Working Papers 06/27, International Monetary Fund. [Downloadable!]
  3. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence," IMF Working Papers 07/171, International Monetary Fund. [Downloadable!]
  4. Jacopo Cimadomo, 2008. "Fiscal policy in real time," Working Paper Series 919, European Central Bank. [Downloadable!]
    Other versions:
  5. Laura dos Reis & Paolo Manasse & Ugo Panizza, 2007. "Targeting the Structural Balance," RES Working Papers 4507, Inter-American Development Bank, Research Department. [Downloadable!]
Statistics
Access and download statistics

Did you know? LogEc provides statistical analysis about downloads from this service (and others).

This page was last updated on 2009-11-20.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.