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Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization

Author

Listed:
  • Tamim Bayoumi

    (International Monetary Fund)

  • Barry Eichengreen

    (International Monetary Fund)

Abstract

State budgets played a significant macroeconomic role in the United States during the 1970s and 1980s. Their cyclical responsiveness was affected by the severity of statutory and constitutional fiscal restraints. Moving from no fiscal restraints to stringent restraints lowered the fiscal offset to income fluctuations by roughly 40 percent. Simulations indicate that a reduction in aggregate fiscal stabilizers of this size could lead to a significant increase in the variance of aggregate output.

Suggested Citation

  • Tamim Bayoumi & Barry Eichengreen, 1995. "Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization," IMF Staff Papers, Palgrave Macmillan, vol. 42(1), pages 32-48, March.
  • Handle: RePEc:pal:imfstp:v:42:y:1995:i:1:p:32-48
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    More about this item

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H74 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Borrowing

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