The Costs and Benefits of Fiscal Rules: Evidence from U.S. States
16 Pages Posted: 27 Jun 2000
Date Written: June 1996
This paper shows that in American states balanced budget rules are effective in enforcing fiscal discipline but they have no costs in terms of increased output variability. More specifically, we show that tighter fiscal rules are associated with larger average surplus and lower cyclical variability of the budget balance. However, the lower flexibility of the budget balance does not affect state output variability.
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