How fiscal rules matter for successful fiscal consolidations: New evidence

Lasse Aaskoven*, Rasmus Wiese

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

Fiscal rules are increasingly promoted by international organizations. We investigate whether fiscal rules are effective in achieving sustained debt reduction during periods of fiscal consolidation using data from 19 OECD countries. The analysis is based on an extended version of the International Monetary Fund's fiscal rules database. Fiscal consolidation periods are identified using a novel method that takes differences in the variability of fiscal balances into account. We find: (i) the EU's Stability and Growth Pact is associated with sustained debt reduction while it is more doubtful if the mere existence of national fiscal rules has an effect. (ii) Fiscal rules have a stronger association with sustained debt reduction when they are embedded in a stricter national institutional framework (JEL codes: H6).

Original languageEnglish
JournalCESifo Economic Studies
Volume68
Issue number4
Pages (from-to)414-433
ISSN1610-241X
DOIs
Publication statusPublished - Dec 2022

Keywords

  • fiscal rules
  • Stability and Growth Pact
  • debt reduction
  • (successful) fiscal consolidation

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