How Do Expenditure Rules Affect Fiscal Behaviour?

Abstract:     
This paper investigates the effects of self-enforced expenditure rules on fiscal behaviour. According to theory, such rules can restrain spending biases if the political and institutional costs of non-compliance are sufficiently large. The empirical analysis indicates that the institutional design of the rules reflects political willingness to address high expenditure to GDP ratios. Through this effect, well-designed expenditure rules have a restraining impact on expenditure outcomes, and also mitigate the effect of shocks on expenditure developments.

Number of Pages in PDF File: 18

working papers series