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What do deficits tell us about debt? : Empirical evidence on creative accounting with fiscal rules in the EU Author info | Abstract | Publisher info | Download info | Related research | Statistics von Hagen, Jürgen
Wolff, Guntram B.
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Fiscal rules, such as the excessive deficit procedure and the stability and growth pact (SGP), aim at constraining government behavior. Milesi-Ferretti (2003) develops a model in which governments circumvent such rules by reverting to creative accounting. The amount of this creative accounting depends on the reputation cost for the government and the economic cost of sticking to the rule. In this paper, we provide empirical evidence of creative accounting in the European Union. We find that the SGP rules have induced governments to use stock-flow adjustments, a form of creative accounting, to hide deficits. This tendency to substitute stock-flow adjustments for budget deficits is especially strong for the cyclical component of the deficit, as in times of recession the cost of reducing the deficit is particularly large. --
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number
2004,38.
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Date of creation: 2004Date of revision:
Handle: RePEc:zbw:bubdp1:2916Contact details of provider: Postal: Postfach 10 06 02, 60006 Frankfurt Phone: 0 69 / 95 66 - 34 55 Fax: 0 69 / 95 66 30 77 Email: Web page: http://www.bundesbank.de/ More information through EDIRC
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Keywords: Fiscal rules ; stock-flow adjustments ; debt-deficit adjustments ; stability and growth pact ; excessive deficit procedure ; ESA 95 ; Other versions of this item:
Article Paper von Hagen, Jürgen & Wolff, Guntram, 2004.
"What Do Deficits Tell us About Debts? Empirical Evidence on Creative Accounting with Fiscal Rules in the EU ,"
CEPR Discussion Papers
4759, C.E.P.R. Discussion Papers.
[Downloadable!] (restricted) Jürgen von Hagen & Guntram B. Wolff, 2006.
"What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU ,"
Discussion Papers
148, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
[Downloadable!] Find related papers by JEL classification: H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management
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