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The Costs and Benefits of Fiscal Rules: Evidence from U.S. States

  • Alberto Alesina
  • Tamim Bayoumi

This paper shows that in American states balanced budget rules are effective in enforcing fiscal discipline but they have no costs in terms of increased output variability. More specifically, we show that tighter fiscal rules are associated with larger average surplus and lower cyclical variability of the budget balance. However, the lower flexibility of the budget balance does not affect state output variability.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5614.

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Date of creation: Jun 1996
Date of revision:
Publication status: Published as "Together or Separately? Issues on the Costs and Benefits of Political and Fiscal Unions", European Economic Review, Vol. 39, nos. 3-4(1995).
Handle: RePEc:nbr:nberwo:5614
Note: ME PE
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  1. Alberto F. Alesina & Roberto Perotti, 1999. "Budget Deficits and Budget Institutions," NBER Chapters, in: Fiscal Institutions and Fiscal Performance, pages 13-36 National Bureau of Economic Research, Inc.
  2. Poterba, James M, 1994. "State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 799-821, August.
  3. Stein, Ernesto & Hommes, Rudolf & Hausmann, Ricardo & Alesina, Alberto, 1999. "Budget Institutions and Fiscal Performance in Latin America," Scholarly Articles 4553021, Harvard University Department of Economics.
  4. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  5. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  6. Barry Eichengreen & Ricardo Hausmann & Jürgen Von Hagen, 1999. "Reforming Budgetary Institutions in Latin America: The Case for a National Fiscal Council," Open Economies Review, Springer, vol. 10(4), pages 415-442, October.
  7. 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.
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