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How Fiscal Rules Matter for Successful Fiscal Consolidations: New Evidence
[Fiscal Discipline and the Budget Process]

Author

Listed:
  • Lasse Aaskoven
  • Rasmus Wiese

Abstract

Fiscal rules are increasingly promoted by international organizations. We investigate whether fiscal rules are effective in achieving sustained debt reduction during periods of fiscal consolidation using data from 19 OECD countries. The analysis is based on an extended version of the International Monetary Fund’s fiscal rules database. Fiscal consolidation periods are identified using a novel method that takes differences in the variability of fiscal balances into account. We find: (i) the EU’s Stability and Growth Pact is associated with sustained debt reduction while it is more doubtful if the mere existence of national fiscal rules has an effect. (ii) Fiscal rules have a stronger association with sustained debt reduction when they are embedded in a stricter national institutional framework (JEL codes: H6).

Suggested Citation

  • Lasse Aaskoven & Rasmus Wiese, 2022. "How Fiscal Rules Matter for Successful Fiscal Consolidations: New Evidence [Fiscal Discipline and the Budget Process]," CESifo Economic Studies, CESifo Group, vol. 68(4), pages 414-433.
    • Handle: RePEc:oup:cesifo:v:68:y:2022:i:4:p:414-433.
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    File URL: http://hdl.handle.net/10.1093/cesifo/ifac011
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    More about this item

    Keywords

    fiscal rules; Stability and Growth Pact; debt reduction; (successful) fiscal consolidation;
    All these keywords.

    JEL classification:

    • H6 - Public Economics - - National Budget, Deficit, and Debt

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