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Fiscal Rules: Theoretical Issues and Historical Experiences

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  • Charles Wyplosz

Abstract

Fiscal indiscipline is a feature of many developed countries. It is generally accepted that the source of the phenomenon lies in the common pool problem, the fact that recipients of public spending to fail to fully internalize the costs that taxpayers must assume. As a result, democratically elected governments are led to postpone tax collection, or to cut spending. Solving the fiscal discipline problem requires internalizing this externality. This calls for adequate institutions or for rules, or both. This paper reviews the various types of solutions that have been discussed in the literature and surveys a number of experiments. With the European debt crisis in mind, the paper pays particular attention to the common pool problem that emerges in federal states. The main conclusions are the following. First, rules are unlikely to exist unless they come with supporting institutions. Second, fiscal institutions are neither necessary nor sufficient to achieve fiscal discipline, but they help. Third, because institutions must bind the policymakers without violating the democratic requirement that elected officials have the power to decide on budgets, effective arrangements are those that give institutions the authority to apply legal rules or to act as official watchdogs.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17884.

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Date of creation: Mar 2012
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Publication status: published as Fiscal Rules: Theoretical Issues and Historical Experiences , Charles Wyplosz. in Fiscal Policy after the Financial Crisis , Alesina and Giavazzi. 2013
Handle: RePEc:nbr:nberwo:17884

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References

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Citations

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Cited by:
  1. Catherine Mathieu & Henri Sterdyniak, 2012. "Faut-il des règles de politique budgétaire ?," Sciences Po publications 2012-07, Sciences Po.
  2. Hanappi, Hardy, 2013. "Future methods of political economy: from Hicks’ equation systems to evolutionary macroeconomic simulation," MPRA Paper 47181, University Library of Munich, Germany.
  3. Veronica Grembi & Tommaso Nannicini & Ugo Troiano, 2012. "Policy Responses to Fiscal Restraints: A Difference-in-Discontinuities Design," CESifo Working Paper Series 3999, CESifo Group Munich.
  4. Neyapti, Bilin, 2013. "Fiscal decentralization, fiscal rules and fiscal discipline," Economics Letters, Elsevier, vol. 121(3), pages 528-532.
  5. Niels Gilbert & Jeroen Hessel & Silvie Verkaart, 2013. "Towards a Stable Monetary Union: What Role for Eurobonds?," DNB Working Papers 379, Netherlands Central Bank, Research Department.
  6. repec:spo:wpecon:info:hdl:2441/eo6779thqgm5r489maqa474kg is not listed on IDEAS
  7. Michael Kumhof & Douglas Laxton, 2009. "Fiscal Deficits and Current Account Deficits," IMF Working Papers 09/237, International Monetary Fund.
  8. Balatoni, András & Tóth G., Csaba, 2012. "Az új magyar adósságszabály értékelése
    [Assessment of the new regulations on debt]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(10), pages 1107-1137.
  9. repec:spo:wpecon:info:hdl:2441/eo6779thqgm5r489m6u1i2a0o is not listed on IDEAS
  10. Silvana Bartoletto & Bruno Chiarini & Elisabetta Marzano, 2012. "The Sustainability of Fiscal Policy in Italy: A Long-Term Perspective," CESifo Working Paper Series 3812, CESifo Group Munich.
  11. André Grjebine, 2013. "L’Eurosystème: un mécanisme de transferts en faveur des pays déficitaires ? Le débat," Sciences Po publications info:hdl:2441/eo6779thqgm, Sciences Po.

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