IDEAS home Printed from https://ideas.repec.org/p/imf/imfwpa/10-248.html
   My bibliography  Save this paper

Structural Breaks in Fiscal Performance; Did Fiscal Responsibility Laws Have Anything to Do with Them?

Author

Listed:
  • Leandro Medina
  • Carlos Caceres
  • Ana Corbacho

Abstract

In recent years, many countries have adopted Fiscal Responsibility Laws to strengthen fiscal institutions and promote fiscal discipline in a credible, predictable and transparent manner. Still, results on the effectiveness of these laws remain tentative. In this paper, we test empirically whether fiscal performance, measured as the level of primary fiscal balances and their volatility, indeed improved after the implementation of Fiscal Responsibility Laws in a sample of Latin American and advanced economies. We show that traditional econometric approaches, which rely on the use of dummies in time series or panel regressions, yield biased estimates. In contrast, our empirical strategy recognizes that, a priori, the timing of the effect of these laws on fiscal performance is unknown, while controlling for the impact of the business and commodity cycles on fiscal outcomes. Overall, we find limited empirical evidence in support of the view that Fiscal Responsibility Laws have had a distinguishable effect on fiscal performance. However, Fiscal Responsibility Laws could still have other positive effects on the conduct of fiscal policy not analyzed here, for instance, through enhanced transparency and guidance in the budget process and lower risk premia.

Suggested Citation

  • Leandro Medina & Carlos Caceres & Ana Corbacho, 2010. "Structural Breaks in Fiscal Performance; Did Fiscal Responsibility Laws Have Anything to Do with Them?," IMF Working Papers 10/248, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/248
    as

    Download full text from publisher

    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=24336
    Download Restriction: no

    References listed on IDEAS

    as
    1. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Végh, 2005. "When It Rains, It Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Chapters,in: NBER Macroeconomics Annual 2004, Volume 19, pages 11-82 National Bureau of Economic Research, Inc.
    2. Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
    3. Alesina, Alberto & Hausmann, Ricardo & Hommes, Rudolf & Stein, Ernesto, 1999. "Budget institutions and fiscal performance in Latin America," Journal of Development Economics, Elsevier, vol. 59(2), pages 253-273, August.
    4. Ethan Ilzetzki & Carlos A. Vegh, 2008. "Procyclical Fiscal Policy in Developing Countries: Truth or Fiction?," NBER Working Papers 14191, National Bureau of Economic Research, Inc.
    5. Tai-leung Chong, Terence, 1995. "Partial parameter consistency in a misspecified structural change model," Economics Letters, Elsevier, vol. 49(4), pages 351-357, October.
    6. Leandro Medina, 2010. "The Dynamic Effects of Commodity Prices on Fiscal Performance in Latin America," IMF Working Papers 10/192, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yener Altunbaş & John Thornton, 2017. "Why Do Countries Adopt Fiscal Rules?," Manchester School, University of Manchester, vol. 85(1), pages 65-87, January.
    2. Klaus Schmidt-Hebbel, 2012. "Fiscal Institutions in Resource-Rich Economies: Lessons from Chile and Norway," Documentos de Trabajo 416, Instituto de Economia. Pontificia Universidad Católica de Chile..
    3. Raúl Alberto Chamorro Narváez & Andrés Felipe Urrea Bermúdez, 2016. "Incidencia de las reglas fiscales en la sostenibilidad de la deuda pública territorial en Colombia," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, vol. 35(Especial ), pages 207-251, January.
    4. Klaus Schmidt-Hebbel, 2012. "Fiscal Policy for Commodity Exporting Countries: Chile's Experience," Documentos de Trabajo 415, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. Leandro Medina, 2016. "The Effects of Commodity Price Shocks on Fiscal Aggregates in Latin America," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 502-525, August.
    6. Ondra Kamenik & Zdenek Tuma & David Vavra & Zuzana Smidova, 2013. "A Simple Fiscal Stress Testing Model: Case Studies of Austrian, Czech and German Economies," OECD Economics Department Working Papers 1074, OECD Publishing.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:imf:imfwpa:10/248. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi). General contact details of provider: http://edirc.repec.org/data/imfffus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.