Fiscal Rules, Fiscal Councils and All that: Commitment Devices, Signaling Tools or Smokescreens?

34 Pages Posted: 14 Feb 2012

See all articles by Xavier Debrun

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Manmohan Kumar

International Monetary Fund (IMF) - Research Department

Date Written: March 29, 2007

Abstract

Xavier Debrun and Manmohan S. Kumar deal with the impact of institutions on fiscal discipline, first discussing the point in principle: (i) fiscal institutions can work as commitment devices (i.e. tie policymakers’ hands); (ii) they can work as signalling devices (i.e. reduce the information asymmetry between the electorate and policymakers); and (iii) they can be smokescreens. The second part of the paper develops an empirical analysis to test these three hypotheses, referring to descriptive evidence and estimating a multivariate panel model for a large sample of EU countries over the period 1990-2004. The authors use time-varying indices of fiscal rule restrictiveness and coverage. The analysis finds significant support for both commitment and signalling, little for the smokescreen hypothesis.

Suggested Citation

Debrun, Xavier and Kumar, Manmohan, Fiscal Rules, Fiscal Councils and All that: Commitment Devices, Signaling Tools or Smokescreens? (March 29, 2007). Available at SSRN: https://ssrn.com/abstract=2004371 or http://dx.doi.org/10.2139/ssrn.2004371

Xavier Debrun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8321 (Phone)
202-623-6343 (Fax)

Manmohan Kumar

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-7771 (Phone)
202-589-7771 (Fax)

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