IDEAS home Printed from
   My bibliography  Save this article

Fiscal Rules and Financial Systems: Complements or Substitutes?


  • Juan Gabriel Fernández
  • Francisco Parro


We study the effect of fiscal rules on a country's credit rating and their interaction with financial development. We build a rich set of panel data, which includes a novel index for the strength of fiscal rules. We find a positive and significant effect of fiscal rules on sovereign ratings. We also find that this effect is attenuated in economies with a more developed domestic financial system. Therefore, financial markets act as a substitute for fiscal rules in lowering the default risk assessed by credit rating agencies. This substitution effect between fiscal rules and financial development is mostly triggered through the monitoring and enforcement dimension of fiscal rules.

Suggested Citation

  • Juan Gabriel Fernández & Francisco Parro, 2019. "Fiscal Rules and Financial Systems: Complements or Substitutes?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(3), pages 588-616, June.
  • Handle: RePEc:bla:obuest:v:81:y:2019:i:3:p:588-616
    DOI: 10.1111/obes.12279

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:obuest:v:81:y:2019:i:3:p:588-616. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley Content Delivery). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.