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Consumption smoothing in a balanced budget regime

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  • Persson, Lovisa

    () (Uppsala Center for Fiscal Studies)

Abstract

I investigate consumption smoothing (sensitivity) under a balanced budget rule in Swedish municipalities. In general, I find Swedish municipalities to be highly consumption sensitive during the time period 2001-2011 when the BBR was in place. A one percentage increase in predicted current revenues leads to a 0.74-0.76 percentage increase in current consumption. I use scal indicators - the level of own funds and net operating surplus - as proxies for budget balance boundness. Municipalities that perform well in both these scal areas are more smoothing than municipalities that do not perform well in either, implying that budget balance plays a role for consumption smoothing behavior. However, consumption sensitivity has decreased in the aggregate since the implementa- tion of the BBR. A possible story is that municipalities were primarily upward sensitive before the BBR, and primarily downward sensitive after the BBR. This explanation also ts the descriptive picture that the aggregate surplus in the sector has turned to positive from negative since the BBR implementation.

Suggested Citation

  • Persson, Lovisa, 2013. "Consumption smoothing in a balanced budget regime," Working Paper Series, Center for Fiscal Studies 2013:12, Uppsala University, Department of Economics.
  • Handle: RePEc:hhs:uufswp:2013_012
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    Cited by:

    1. Dietrichson, Jens & Ellegård, Lina Maria, 2015. "Assist or desist? Conditional bailouts and fiscal discipline in local governments," European Journal of Political Economy, Elsevier, vol. 38(C), pages 153-168.
    2. Solé-Ollé, Albert & Viladecans-Marsal, Elisabet, 2017. "Housing booms and busts and local fiscal policy," ZEW Discussion Papers 17-001, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

    More about this item

    Keywords

    Local public finance; Balanced budget rules; Consumption smoothing; Fiscal consolidation; Fiscal institutions;

    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • 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

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