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Fiscal rules, budget deficits and budget projections

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  • Simon Luechinger
  • Christoph Schaltegger

Abstract

Fiscal rules are mentioned as instruments to commit political actors on long-term fiscal sustainability. However, fiscal rules may have stronger effects on projected than on realized fiscal outcomes because of window-dressing measures or because they alter the bargaining situation in the budget process. In our analysis for Swiss cantons, fiscal rules significantly lower the probability of projected and realized deficits with the former effect being twice as large. Projections are generally over-pessimistic but fiscal rules increase the probability of accurate projections. Thus, fiscal rules seem to substitute for finance ministers’ over-pessimistic projections intended to reign in fellow ministers and legislatures (100 words). Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Simon Luechinger & Christoph Schaltegger, 2013. "Fiscal rules, budget deficits and budget projections," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(5), pages 785-807, October.
  • Handle: RePEc:kap:itaxpf:v:20:y:2013:i:5:p:785-807
    DOI: 10.1007/s10797-012-9245-9
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    Cited by:

    1. Picchio, Matteo & Santolini, Raffaella, 2020. "Fiscal rules and budget forecast errors of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 64(C).
    2. Braendle, Thomas & Colombier, Carsten, 2016. "What drives public health care expenditure growth? Evidence from Swiss cantons, 1970–2012," Health Policy, Elsevier, vol. 120(9), pages 1051-1060.
    3. Hirota, Haruaki & Yunoue, Hideo, 2017. "The effects of the new fiscal rule and creative accounting: Empirical evidence from Japanese municipalities," MPRA Paper 79812, University Library of Munich, Germany.
    4. Christian F. Pfeil & Lars P. Feld, 2016. "Does the Swiss Debt Brake Induce Sound Federal Finances? A Synthetic Control Analysis," CESifo Working Paper Series 6044, CESifo.
    5. Chatagny, Florian, 2015. "Incentive effects of fiscal rules on the finance minister's behavior: Evidence from revenue projections in Swiss Cantons," European Journal of Political Economy, Elsevier, vol. 39(C), pages 184-200.
    6. Santiago Lago-Peñas & Jorge Martinez-Vazquez & Agnese Sacchi, 2020. "Fiscal stability during the Great Recession: putting decentralization design to the test," Regional Studies, Taylor & Francis Journals, vol. 54(7), pages 919-930, July.
    7. Heiko T. Burret & Lars P. Feld & Christoph A. Schaltegger, 2018. "Fiscal Federalism and Economic Performance - New Evidence from Switzerland," CESifo Working Paper Series 7250, CESifo.
    8. Lars P. Feld & Alexander Kalb & Marc-Daniel Moessinger & Steffen Osterloh, 2013. "Sovereign Bond Market Reactions to Fiscal Rules and No-Bailout Clauses - The Swiss Experience," CESifo Working Paper Series 4195, CESifo.
    9. Venturini, Fiorenza, 2020. "The unintended composition effect of the subnational government fiscal rules: The case of Italian municipalities," European Journal of Political Economy, Elsevier, vol. 63(C).
    10. 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.
    11. Fiorenza Venturini, 2018. "The Unintended Composition Effect of the Subnational Government Fiscal Rules: The Case of Italian Municipalities," Working papers 70, Società Italiana di Economia Pubblica.
    12. Marianne Yousseff ISKANDAR, 2016. "The Effectiveness of Fiscal Rules - The Case of Switzerland," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(3), pages 264-267, September.
    13. Hirota, Haruaki & Yunoue, Hideo, 2015. "地方財政健全化指標における相互依存関係の実証分析 [Interdependency of Financial Indexes in the Law Relating to the Financial Soundness of Local Governments: Empirical evidence of Japanese prefectural data]," MPRA Paper 61223, University Library of Munich, Germany.
    14. Dilla, Diana, 2017. "Staatsverschuldung und Verschuldungsmentalität [Public Debt and Debt Mentality]," MPRA Paper 79432, University Library of Munich, Germany.
    15. Lutfi Zharku, 2018. "Budget Deficits, Public Debt and Irregular Receipts: Kosovo case," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 14(5), pages 268-285, OCTOBER.
    16. Ramon Christen & Nils C. Soguel, 2019. "How can states benefit from the equity premium puzzle? Debt as revenue source for Swiss cantons," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-17, December.
    17. Pirvu, Daniela & Dutu, Amalia & Enachescu, Carmen, 2019. "Analysing Of Government'S Fiscal Behaviour In The Eu Member States Through Clustering Procedure," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 10(1), pages 23-39.
    18. Heinemann, Friedrich & Moessinger, Marc-Daniel & Yeter, Mustafa, 2018. "Do fiscal rules constrain fiscal policy? A meta-regression-analysis," European Journal of Political Economy, Elsevier, vol. 51(C), pages 69-92.
    19. Maxime Clémenceau & Nils Soguel, 2018. "How does depreciations management affect subsequent fiscal performance? The case of the Swiss cantons," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 154(1), pages 1-15, December.
    20. 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.
    21. John G. Matsusaka, 2018. "Public policy and the initiative and referendum: a survey with some new evidence," Public Choice, Springer, vol. 174(1), pages 107-143, January.
    22. Heiko T. Burret & Lars P. Feld, 2016. "Effects of Fiscal Rules - 85 Years' Experience in Switzerland," CESifo Working Paper Series 6063, CESifo.
    23. 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.
    24. Tóth G., Csaba, 2017. "A nemzeti költségvetési szabályok elterjedése és hatása Európában [The spread of national fiscal rules and their effect in Europe]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1119-1147.

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    More about this item

    Keywords

    Deficit projections; Deficits; Fiscal rules; Budget process; D72; H72; H79;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
    • H79 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Other

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