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,whereasmost 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 output and, to a lesser extent, 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 inflationdestabilising nature of discretionary policy, if any, probably because of the higher importance of central banks in that respect.

The impact of national fiscal rules on the stabilisation function of fiscal policy / Sacchi, Agnese; Salotti, Simone. - In: EUROPEAN JOURNAL OF POLITICAL ECONOMY. - ISSN 0176-2680. - STAMPA. - 37:(2015), pp. 1-20. [10.1016/j.ejpoleco.2014.10.003]

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

SACCHI, AGNESE;
2015

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,whereasmost 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 output and, to a lesser extent, 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 inflationdestabilising nature of discretionary policy, if any, probably because of the higher importance of central banks in that respect.
2015
discretionary fiscal policy; macroeconomic volatility ; fiscal rules; stabilisation function
01 Pubblicazione su rivista::01a Articolo in rivista
The impact of national fiscal rules on the stabilisation function of fiscal policy / Sacchi, Agnese; Salotti, Simone. - In: EUROPEAN JOURNAL OF POLITICAL ECONOMY. - ISSN 0176-2680. - STAMPA. - 37:(2015), pp. 1-20. [10.1016/j.ejpoleco.2014.10.003]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/915087
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