The impact of national fiscal rules on the stabilisation function of fiscal policy

Abstract

We study the relationship between discretionary fiscal policy and macroeconomic stability in 21 OECD countries over the 1985-2012 period. The novelties of our contribution lie in the use of annual panel data, whereas most of the existing evidence is cross-sectional, and more importantly in the thorough investigation of how fiscal rules affect the policy-macroeconomic stability relationship. We find that the aggressive use of discretionary fiscal policy, particularly of government consumption items, leads to higher volatility of both output and inflation. However, when strict fiscal rules are introduced, discretionary policy becomes output-stabilising rather than destabilising. This result can be more easily achieved by rules on balanced budgets, rather than on expenditures, revenues, or debt.On the other hand, fiscal rules are unable to affect the inflation-destabilising nature of discretionary policy, probably because of the higher importance of central banks in that respect.

The Credibility of Fiscal Rules Policy and Business Cycle Volatility

“…This finding is in line with the study of Sacchi and Salotti (2014). They find that when strict fiscal rules are introduced, discretionary policy becomes output-stabilizing.…”

“…Moreover, more recent EU member states have gained from the implementation of fiscal rules. Recently, Sacchi and Salotti (2014) find that the aggressive use of discretionary fiscal policy leads to higher volatility of output. However, when strict fiscal rules are introduced, discretionary policy becomes output-stabilizing rather than destabilizing.…”

“…While they use rules' indices taking values between zero and five (higher values stand for stricter rules), we measure fiscal rules as deviation of budget realization from the projected one. In our approach, the stricter rules as meant by Sacchi and Salotti (2014) are represented by zero for credibility of deficit rule and unity for credibility of debt rule policy respectively.…”

State tax policy in the conditions of economic instability in the Russian Federation

“…Государство определяет цели и задачи налоговой политики, а затем методы и инструменты ее осуществления, как правило, применяя комплексный подход (Александрова, Цапулина, Викторов, 2012;Алиев, Алиев, 2012;Захарьин, 2012;Золочевская, 2012;Каратаев, 2011;Мазур, 2012;Маслова, 2012;Пупкова, Захарова, 2007;Расулев, Воронин, Юсупова, 2007;Сидорова, 2011;Юрзинова, 2007;Akanbi, 2013;Alcántar-Toledo, Venieris, 2014;Bauducco, Caprioli, 2014;Candelon, Lieb, 2013;Dosi, Fagiolo, Napoletano, Roventini, 2013;Flodén, 2013;Kliem, Kriwoluzky, 2014;Liu, Su, Jiang, 2014;Redoano, 2014;Sacchi, Salotti, 2015). Обычно цели и задачи налоговой политики определяются в зависимости от конкретной экономической конъюнктуры.…”

Does the sustainable fiscal policy foster its credibility?

“…Generally, it is widely accepted that a government with a strong reputation of fiscal prudence does not necessarily need to be constrained by rules. However, when this is not the case, international evidence shows that fiscal rules can provide a useful framework for fiscal policy and can ultimately contribute to macroeconomic stability and economic growth Rother, 2004;Sacchi & Salotti, 2014).…”