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National numerical fiscal rules: Not complied with, but still effective?

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  • Reuter, Wolf Heinrich

Abstract

This paper investigates the effects of (non-)compliance with national numerical fiscal rules on fiscal policy in 11 EU member states with 23 fiscal rules in place from 1994 to 2012. Introducing a new dataset of legal texts constituting the fiscal rules, allows a joint empirical analysis of different types and designs of numerical fiscal rules. In various empirical exercises the change in the difference between the exact variable constrained by the fiscal rule and its numerical limit is analysed. Statistics show that countries comply with their fiscal rules only in about 50% of the years. Nevertheless, various econometric exercises demonstrate that the introduction of fiscal rules does significantly change the behaviour of fiscal policy. If countries do not comply with their fiscal rule in the year or forecast before, there is a strong downward tendency of the constrained variable towards the numerical limit. The results show that fiscal rules act as kind of a benchmark for policy makers and the public, and even though they might be complied with only in half of the years, they still tilt fiscal policy towards the numerical limit in times of non-compliance.

Suggested Citation

  • Reuter, Wolf Heinrich, 2015. "National numerical fiscal rules: Not complied with, but still effective?," European Journal of Political Economy, Elsevier, vol. 39(C), pages 67-81.
  • Handle: RePEc:eee:poleco:v:39:y:2015:i:c:p:67-81
    DOI: 10.1016/j.ejpoleco.2015.04.002
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    Cited by:

    1. Heiko T. Burret & Lars P. Feld, 2018. "Vertical effects of fiscal rules: the Swiss experience," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(3), pages 673-721, June.
    2. Beetsma, Roel & Debrun, Xavier & Fang, Xiangming & Kim, Young & Lledó, Victor & Mbaye, Samba & Zhang, Xiaoxiao, 2019. "Independent fiscal councils: Recent trends and performance," European Journal of Political Economy, Elsevier, vol. 57(C), pages 53-69.
    3. Lasse Aaskoven, 2016. "Fiscal Transparency, Elections and Public Employment: Evidence from the OECD," Economics and Politics, Wiley Blackwell, vol. 28(3), pages 317-341, November.
    4. repec:kap:pubcho:v:178:y:2019:i:1:d:10.1007_s11127-018-0605-6 is not listed on IDEAS
    5. Debrun, Xavier & Jonung, Lars, 2019. "Under threat: Rules-based fiscal policy and how to preserve it," European Journal of Political Economy, Elsevier, vol. 57(C), pages 142-157.
    6. Amelie BARBIER-GAUCHARD & Kea BARET & Alexandru MINEA, 2019. "National Fiscal Rules Adoption and Fiscal Discipline in the European Union," Working Papers of BETA 2019-40, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    7. Ryota Nakatani, 2019. "A Possible Approach to Fiscal Rules in Small Islands — Incorporating Natural Disasters and Climate Change," IMF Working Papers 19/186, International Monetary Fund.
    8. repec:eee:jimfin:v:91:y:2019:i:c:p:177-194 is not listed on IDEAS
    9. repec:eee:poleco:v:52:y:2018:i:c:p:166-191 is not listed on IDEAS
    10. Reuter, Wolf Heinrich, 2017. "When and why do countries break their national fiscal rules?," Working Papers 01/2017, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    11. Tóth, Csaba G., 2017. "Own or inherited? The effect of national fiscal rules after changes of government," MPRA Paper 81178, University Library of Munich, Germany.
    12. Westerhout, Ed & Beetsma, Roel, 2019. "A comparison of nominal and indexed debt under fiscal constraints," Journal of International Money and Finance, Elsevier, vol. 91(C), pages 177-194.
    13. Reuter, Wolf Heinrich & Tkačevs, Oļegs & Vilerts, Kārlis, 2018. "On the design of stabilising fiscal rules," Working Papers 11/2018, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    14. repec:eee:poleco:v:57:y:2019:i:c:p:125-141 is not listed on IDEAS
    15. repec:ris:utmsje:0258 is not listed on IDEAS
    16. repec:mnb:handbk:v:2:y:2017:i:14:p:60 is not listed on IDEAS
    17. Wolf Heinrich Reuter, 2016. "Design of fiscal frameworks and compliance with fiscal rules in CESEE," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 29-40.
    18. repec:kap:pubcho:v:171:y:2017:i:3:d:10.1007_s11127-017-0441-0 is not listed on IDEAS
    19. repec:ksa:szemle:1732 is not listed on IDEAS

    More about this item

    Keywords

    National fiscal rules; Numerical limits; Budget forecasts; Fiscal policy;

    JEL classification:

    • H60 - Public Economics - - National Budget, Deficit, and Debt - - - General
    • H68 - Public Economics - - National Budget, Deficit, and Debt - - - Forecasts of Budgets, Deficits, and Debt
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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