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 Rome I - Sapienza University of Rome, Department of Earth Sciences and Forecasting Research Center, Prevention and Control of Geological Risks

Tommaso Nannicini

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

Ugo antonio Troiano

University of California Riverside

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 antonio, 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 Rome I - Sapienza University of Rome, Department of Earth Sciences and Forecasting Research Center, Prevention and Control of Geological Risks ( email )

Rome
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 antonio Troiano (Contact Author)

University of California Riverside ( email )

900 University Avenue
Riverside, CA 92521
United States

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