Issues in the Design of Fiscal Policy Rules

31 Pages Posted: 27 Aug 2015

See all articles by Jonathan Portes

Jonathan Portes

Government of the United Kingdom - Department for Work and Pensions (DWP)

Simon Wren‐Lewis

University of Oxford

Date Written: September 2015

Abstract

Theory suggests that government should smooth taxes and spending, and adjustments in the level of debt should be gradual. Fiscal rules should therefore relate to deficits rather than debt. Rules should also reflect constraints on monetary policy. In normal times, rules should reflect political and institutional considerations, such as the potential for ‘deficit bias’, and the effectiveness of any fiscal council. For example, governments without a history of bias might target deficits five years ahead. However, if interest rates hit the zero lower bound, fiscal and monetary policy coordination is required, and here fiscal councils can also have an important role.

Suggested Citation

Portes, Jonathan and Wren‐Lewis, Simon, Issues in the Design of Fiscal Policy Rules (September 2015). The Manchester School, Vol. 83, pp. 56-86, 2015. Available at SSRN: https://ssrn.com/abstract=2650890 or http://dx.doi.org/10.1111/manc.12118

Jonathan Portes (Contact Author)

Government of the United Kingdom - Department for Work and Pensions (DWP) ( email )

London SW1A 2AA
United Kingdom

Simon Wren‐Lewis

University of Oxford

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
313
PlumX Metrics