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The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization

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  • Jonathan Millar

Abstract

Budget rules can be defined as legislated or constitutional constraints on government deficits, taxes, expenditures, or debt. This paper reviews the budget rules recently legislated in six of Canada's provinces and both of its territories, as well as budget rules in other OECD countries. In theory, budget rules appear to be justified if their cost in terms of foregone fiscal stabilization is outweighed by benefits such as discouraging government debt accumulation and reduced risk premiums on government borrowing. Recent empirical evidence on the effectiveness of budget rules and their consequences for fiscal stabilization is examined in detail. In light of this evidence, the paper assesses the possible implications of budget-rule legislation in Canada on fiscal performance, macroeconomic stabilization, and monetary policy.

Suggested Citation

  • Jonathan Millar, 1997. "The Effects of Budget Rules on Fiscal Performance and Macroeconomic Stabilization," Staff Working Papers 97-15, Bank of Canada.
  • Handle: RePEc:bca:bocawp:97-15
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Robert Amano & Don Coletti & Tiff Macklem, 1998. "Monetary rules when economic behaviour changes," Proceedings, Federal Reserve Bank of San Francisco.
    2. Landon, Stuart & Smith, Constance E., 2007. "Government debt spillovers in a monetary union," The North American Journal of Economics and Finance, Elsevier, vol. 18(2), pages 135-154, August.
    3. Étienne Farvaque & Martial Foucault & Marcelin Joanis, 2015. "L’endettement public des provinces canadiennes : Les règles d’équilibre budgétaire sont-elles efficaces?," CIRANO Working Papers 2015s-10, CIRANO.
    4. Jean-Paul Lam & William Scarth, 2002. "Alternative Public Spending Rules and Output Volatility," Macroeconomics 0211005, EconWPA.
    5. Ahmed, Ovais & Mashkoor, Aasim, 2016. "The wrong impact of Fiscal Imbalance on economic growth and Monetary Policy consequences (A case of Pakistan)," MPRA Paper 69752, University Library of Munich, Germany.
    6. Jean-Paul Lam & William Scarth, 2002. "Alternative Public Spending Rules and Output Volatility," Staff Working Papers 02-37, Bank of Canada.
    7. F. Javier Salinas, 2002. "Accrual Budgeting And Fiscal Consolidation In The Emu," Contemporary Economic Policy, Western Economic Association International, vol. 20(2), pages 193-206, April.
    8. David Prušvic, 2010. "Evropská fiskální pravidla a jejich účinnost: prvních 15 let
      [European Fiscal Policy Rules: First 15 Years]
      ," Politická ekonomie, University of Economics, Prague, pages 51-69.

    More about this item

    Keywords

    Fiscal policy;

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems

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