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Exchange rate regimes and fiscal discipline in OECD countries

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  • Heinemann, Friedrich

Abstract

Since the start of EMU national fiscal policy in the Eurozone can be conducted almost without paying any attention to consequences for the exchange rate. This might lower fiscal discipline. In order to shed light on the empirical relevance of this consideration, the impact of the exchange rate regime and a number of other variables on primary deficits is analysed in a panel estimation for 20 OECD countries from 1970 onwards. The conclusion is that the exchange rate regime as such is not relevant for the fiscal balance – a result backing an optimistic view on fiscal discipline under EMU. On the other hand, however, there is the result that a high degree of openness has a deficit reducing impact. This is a worrying result in the EMU context since the single currency reduces openness. The study underlines the efficacy of the Maastricht criteria. The criteria and not economic necessity have dictated the consolidation in the EU during the 90s.

Suggested Citation

  • Heinemann, Friedrich, 1999. "Exchange rate regimes and fiscal discipline in OECD countries," ZEW Discussion Papers 99-04, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:5219
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    File URL: https://www.econstor.eu/bitstream/10419/24291/1/dp0499.pdf
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    References listed on IDEAS

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    1. Alberto Alesina & Roberto Perotti, 1995. "The Political Economy of Budget Deficits," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 1-31, March.
    2. Heinemann, Friedrich, 1998. "EMU and fiscal discipline: the end of the depreciation threat," ZEW Discussion Papers 98-30, ZEW - Leibniz Centre for European Economic Research.
    3. Heinemann, Friedrich, 1998. "The EMU Consolidation Game - or: Does 3.0 Really Mean 3.0?," ZEW Discussion Papers 98-01, ZEW - Leibniz Centre for European Economic Research.
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    Cited by:

    1. Friedrich Heinemann, 2000. "Does globalization restrict budgetary autonomy?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 35(6), pages 288-298, November.
    2. Heinemann, Friedrich, 1998. "EMU and fiscal discipline: the end of the depreciation threat," ZEW Discussion Papers 98-30, ZEW - Leibniz Centre for European Economic Research.
    3. Philipp Paulus, 2004. "The fiscal stability impact of monetary unions - looking beneath the Stability Pact debate," Otto-Wolff-Institut Discussion Paper Series 05/2004, Otto-Wolff-Institut für Wirtschaftsordnung, Köln, Deutschland.
    4. Heinemann, Friedrich, 1999. "Does globalization restrict budgetary autonomy? A multidimensional approach," ZEW Discussion Papers 99-29, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    EMU; Exchange Rate Regime; Fiscal Discipline;
    All these keywords.

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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