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Issues in the Design of Fiscal Policy Rules

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  • Jonathan Portes
  • Simon Wren-Lewis

Abstract

type="main"> Theory suggests that government should smooth taxes and spending, and adjustments in the level of debt should be gradual. Fiscal rules should therefore relate to deficits rather than debt. Rules should also reflect constraints on monetary policy. In normal times, rules should reflect political and institutional considerations, such as the potential for ‘deficit bias’, and the effectiveness of any fiscal council. For example, governments without a history of bias might target deficits five years ahead. However, if interest rates hit the zero lower bound, fiscal and monetary policy coordination is required, and here fiscal councils can also have an important role.

Suggested Citation

  • Jonathan Portes & Simon Wren-Lewis, 2015. "Issues in the Design of Fiscal Policy Rules," Manchester School, University of Manchester, vol. 83, pages 56-86, September.
  • Handle: RePEc:bla:manchs:v:83:y:2015:i::p:56-86
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    File URL: http://hdl.handle.net/10.1111/manc.12118
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    References listed on IDEAS

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    Cited by:

    1. repec:wfo:wstudy:60595 is not listed on IDEAS
    2. Musgrave, Ralph S., 2014. "The Solution is Full Reserve / 100% Reserve Banking," MPRA Paper 57955, University Library of Munich, Germany.
    3. repec:bla:metroe:v:68:y:2017:i:3:p:500-548 is not listed on IDEAS
    4. repec:kap:openec:v:29:y:2018:i:1:d:10.1007_s11079-017-9446-z is not listed on IDEAS
    5. Hilde C. Bjørnland & Leif Anders Thorsrud, 2015. "Commodity prices and fiscal policy design: Procyclical despite a rule," Working Papers No 5/2015, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    6. Soon Ryoo & Peter Skott, 2017. "Fiscal and Monetary Policy Rules in an Unstable Economy," Metroeconomica, Wiley Blackwell, vol. 68(3), pages 500-548, July.
    7. J.W. Mason & Arjun Jayadev, 2015. "Lost in Fiscal Space: Some Simple Analytics of Macroeconomic Policy in the Spirit of Tinbergen, Wicksell and Lerner," Working Papers 2015_05, University of Massachusetts Boston, Economics Department.
    8. Kuusi, Tero, 2018. "Does the structural budget balance guide fiscal policy pro-cyclically? Evidence from the Finnish Great Depression of the 1990s," MPRA Paper 84829, University Library of Munich, Germany.
    9. Ludovit Ódor & Gábor P. Kiss, 2014. "Back to basics – good indicators for good fiscal institutions!," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 13(4), pages 125-151.
    10. Bai, Yuting & Leeper, Eric M., 2017. "Fiscal stabilization vs. passivity," Economics Letters, Elsevier, vol. 154(C), pages 105-108.
    11. Paulo Vieira & Celsa Machado & Ana Paula Ribeiro, 2016. "Optimal Fiscal Simple Rules for Small and Large Countries of a Monetary Union," EcoMod2016 9685, EcoMod.

    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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