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(Un-)intended effects of fiscal rules

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  • Burret, Heiko T.
  • Feld, Lars P.

Abstract

The paper investigates the fiscal effects of Swiss cantonal debt brakes by taking explicitly into account the rules’ coverage. An in-depth analysis provides unique evidence that suggests the following: First, fiscal rules reduce public deficits. The effect is stronger the better the analyzed budget position corresponds with the variable targeted by the rules. Second, cantonal debt brakes exhibit some unintended effects, i.e., an evasion into unconstrained accounts, emphasizing the importance of constraining all accounts. Third, the existence of political budget cycles depends on the institutional context, i.e., the timing of elections and the presence of debt brakes. Fifth, cantonal debt brakes dampen the fiscal deterioration during unexpected deficit shocks by more rapid fiscal adjustments.

Suggested Citation

  • Burret, Heiko T. & Feld, Lars P., 2018. "(Un-)intended effects of fiscal rules," European Journal of Political Economy, Elsevier, vol. 52(C), pages 166-191.
  • Handle: RePEc:eee:poleco:v:52:y:2018:i:c:p:166-191
    DOI: 10.1016/j.ejpoleco.2017.06.002
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    13. Aidt, Toke S. & Mooney, Graham, 2014. "Voting suffrage and the political budget cycle: Evidence from the London Metropolitan Boroughs 1902–1937," Journal of Public Economics, Elsevier, vol. 112(C), pages 53-71.
    14. Foremny, Dirk & Freier, Ronny & Moessinger, Marc-Daniel & Yeter, Mustafa, 2014. "Overlapping political budget cycles in the legislative and the executive," ZEW Discussion Papers 14-099, ZEW - Leibniz Centre for European Economic Research.
    15. Manuela Krause, 2019. "Communal fees and election cycles: Evidence from German municipalities," ifo Working Paper Series 293, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
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    More about this item

    Keywords

    Fiscal rules; Political budget cycles; Elections; Fiscal shocks; Evasion;
    All these keywords.

    JEL classification:

    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • K39 - Law and Economics - - Other Substantive Areas of Law - - - Other

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