Do Fiscal Rules Matter?

55 Pages Posted: 27 May 2011 Last revised: 10 Oct 2015

See all articles by Veronica Grembi

Veronica Grembi

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM)

Tommaso Nannicini

Bocconi University - Department of Economics; IZA Institute of Labor Economics

Ugo Troiano

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: October 2015

Abstract

Fiscal rules are laws aimed at reducing the incentive to accumulate debt, and many countries adopt them to discipline local governments. Yet, their effectiveness is disputed because of commitment and enforcement problems. We study their impact applying a quasi-experimental design in Italy. In 1999 the central government imposed fiscal rules on municipal governments, and in 2001 relaxed them below 5,000 inhabitants. We exploit the before/after and discontinuous policy variation, and show that relaxing fiscal rules increases deficit and lowers taxes. The effect is larger if the mayor can be reelected, the number of parties is higher, and voters are older.

Keywords: fiscal rules, fiscal federalism, treatment evaluation

JEL Classification: C21, C23, D78, H72, H77

Suggested Citation

Grembi, Veronica and Nannicini, Tommaso and Troiano, Ugo, Do Fiscal Rules Matter? (October 2015). Harvard Economics Department Working Paper , Available at SSRN: https://ssrn.com/abstract=1852523 or http://dx.doi.org/10.2139/ssrn.1852523

Veronica Grembi

University of Milan - Department of Economics, Management and Quantitative Methods (DEMM) ( email )

Via Conservatorio, 7
Milan, 20122
Italy

Tommaso Nannicini

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Ugo Troiano (Contact Author)

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

HOME PAGE: http://sites.google.com/a/umich.edu/troiano

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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