Fiscal Rules and Government Borrowing Costs: International Evidence

Thornton, John; Vasilakis, Chrysovalantis

doi:10.1111/ecin.12484

Cited by 23 publications

(7 citation statements)

References 64 publications

(59 reference statements)

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“…2 As defined by the IMF (2017), "A fiscal rule is a long-lasting constraint on fiscal policy through numerical limits on budgetary aggregates." Hall and Sargent (2015) study the effectiveness of federal debt limits in the U.S. Poterba and Rueben (1999) study the effectiveness of fiscal rules in U.S. states and Thornton and Vasilakis (2017) study the effectiveness across countries. D 'Erasmo et al (2016) summarize work on debt sustainability.…”

Section: Introductionmentioning

confidence: 99%

Constrained Efficient Borrowing with Sovereign Default Risk

2020

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Using a quantitative sovereign default model, we characterize constrained efficient borrowing by a Ramsey government that commits to income-history-contingent borrowing paths taking as given ex-post optimal future default decisions. The Ramsey government improves upon the Markov government because it internalizes the effects of borrowing decisions in period t on borrowing opportunities prior to t. We show the effect of borrowing decisions in t on utility flows prior to t can be encapsulated by two single dimensional variables. Relative to a Markov government, the Ramsey government distorts borrowing decisions more when bond prices are more sensitive to borrowing, and changes in bond prices have a larger effect on past utility. In a quantitative exercise, more than 80% of the default risk is eliminated by a Ramsey government, without decreasing borrowing. The Ramsey government also has a higher probability of completing a successful deleveraging (without defaulting), while smoothing out the fiscal consolidation.

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Section: Introductionmentioning

confidence: 99%

Constrained Efficient Borrowing with Sovereign Default Risk

2020

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“…This finding has also been confirmed for developing countries (Tapsoba 2012). The adoption of numerical fiscal rules reduces government borrowing costs (Thornton and Vasilakis 2018), and fiscal rules significantly affect the composition of public spending (Vinturis 2023).…”

Section: The Macroeconomic Effects Of National Fiscal Rulesmentioning

confidence: 99%

Government debt: the impact of fiscal rules at the European and national level

Kraemer¹,

Lehtimäki

2023

Empirica

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As Europe and the world surface from the pandemic of 2020–2021, public debt levels have risen substantially, the review of the European Union (EU) economic governance framework is underway and the general escape clause of the stability and growth pact (SGP) is planned to be deactivated at the end of 2023. Against this background, it is important to better understand the dynamics of public debt in the EU. This paper studies how European institutions and sectoral national fiscal rules have affected the formation of public debt. The results suggest that over the last 25 years, the SGP has been an effective tool for lowering government debt levels, at least on average. The establishment of the SGP has been the most effective at lowering government debt, while reforms of the SGP have only had limited effects. The effects of national fiscal rules are heterogenous across different rules and public sector classifications, but it seems that national fiscal rules have at least some effects beyond the SGP in all studied cases. This implies that the EU fiscal framework and EU-level fiscal policies should take into account potential interactions with national fiscal rules and both can be used to increase the effectiveness of fiscal policymaking.

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“…Ayuso-i-Casals et al, (2009) report that from 1990 to 2005 an increase in the share of government finances covered by numerical fiscal rules led to lower deficits in the EU countries. A number of studies provide arguments to prove that the introduction of fiscal rules contributes to improved fiscal outcomes, for example: they can contribute to a successful fiscal consolidation (Guichard et al, 2007), deficit or debt rules lead to limiting the budget deficit (Debrun et al, 2008) and to a lower cost of debt servicing (Thornton and Vasilakis, 2018); expenditure rules are conducive to a lower primary expenditure (Deroose, Moulin and Wierts, 2006), also by reducing pressure to increase expenditure in case of revenue windfall (Wierts, 2008). In addition, one can find confirmation that their impact is greater if they are based on strong legal foundations, and compliance with them is strictly enforced (Hallerberg, Strauch and von Hagen, 2007).…”

Section: Fiscal Governance Instruments Versus Fiscal Outcomesmentioning

confidence: 99%

Measuring the fiscal governance instruments: a synthetic index for EU countries

Franek

Postuła²

2021

Brazil. J. Polit. Econ.

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The aim of the paper is to examine the collective effect of fiscal governance instruments (i.e., fiscal rules, medium-term budgetary frameworks, independent fiscal institutions) on the fiscal outcomes of EU member states. The results of panel data model estimation for 28 EU countries for the period 2004-2016 confirm a statistically significant and positive impact of synthentic index for those instruments on the general government balance to GDP ratio. Additionally, an adjustment of the synthetic index was proposed, taking into account the degree of autonomy of independent fiscal institutions, and the link between medium-term budgetary frameworks and the annual budget.

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Fiscal Rules and Government Borrowing Costs: International Evidence

Cited by 23 publications

References 64 publications

Constrained Efficient Borrowing with Sovereign Default Risk

Constrained Efficient Borrowing with Sovereign Default Risk

Government debt: the impact of fiscal rules at the European and national level

Measuring the fiscal governance instruments: a synthetic index for EU countries

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