How Do Expenditure Rules Affect Fiscal Behaviour?
18 Pages Posted: 14 Feb 2012
Date Written: February 13, 2012
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.
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