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The Costs and Benefits of Fiscal Rules: Evidence from U.S. States

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  • Alberto Alesina
  • Tamim Bayoumi

Abstract

This paper shows that in American states balanced budget rules are effective in enforcing fiscal discipline but they have no costs in terms of increased output variability. More specifically, we show that tighter fiscal rules are associated with larger average surplus and lower cyclical variability of the budget balance. However, the lower flexibility of the budget balance does not affect state output variability.

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File URL: http://www.nber.org/papers/w5614.pdf
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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5614.

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Date of creation: Jun 1996
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Publication status: Published as "Together or Separately? Issues on the Costs and Benefits of Political and Fiscal Unions", European Economic Review, Vol. 39, nos. 3-4(1995).
Handle: RePEc:nbr:nberwo:5614

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  1. James M. Poterba, 1993. "State Responses to Fiscal Crisis: The Effects of Budgetary Institutionsand Politics," NBER Working Papers 4375, National Bureau of Economic Research, Inc.
  2. Alberto Alesina & Ricardo Hausmann & Rudolf Hommes & Ernesto Stein, 1996. "Budget Institutions and Fiscal Performance in Latin America," NBER Working Papers 5586, National Bureau of Economic Research, Inc.
  3. repec:fth:calaec:18-95 is not listed on IDEAS
  4. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Fiscal and Monetary Policy in an Economy Without Capital," Discussion Papers 532, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
  6. 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.
  7. Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
  8. Barry Eichengreen & Ricardo Hausmann & Jürgen Von Hagen, 1999. "Reforming Budgetary Institutions in Latin America: The Case for a National Fiscal Council," Open Economies Review, Springer, vol. 10(4), pages 415-442, October.
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