The effects of fiscal institutions on fiscal adjustments

34 Pages Posted: 8 Mar 2023

See all articles by Christos Chrysanthakopoulos

Christos Chrysanthakopoulos

Department of Economics, University of Patras

Athanasios Tagkalakis

Bank of Greece; University of Patras

Date Written: October 1, 2022

Abstract

Using a panel of 40 advanced economies over the period 1990-2020 this paper investigates the effect of various characteristics of fiscal councils and fiscal rules on the probability of starting a fiscal adjustment, as well as on the probability that this fiscal adjustment will be successful. The relevance of fiscal institutions’ characteristics is verified when considering alternative definitions of successful fiscal adjustments. Our results are robust after controlling for endogeneity of fiscal institutions’ characteristics (by the Augmented Inverse Probability Weighted estimator) with fiscal adjustments. We find that a fiscal rule with well specified escape clause, that has multi-year expenditure ceilings and excludes public investment can induce a successful fiscal adjustment. A fiscal council with enhanced remit, independence and accountability and extended tasks and instruments increase the probability of successful fiscal adjustments. Finally, we find that a fiscal council with extended tasks and instruments increase the probability of successful fiscal adjustments based on spending cuts.

Keywords: Fiscal policy, Fiscal councils’ characteristics, Fiscal rules’ characteristics, Fiscal adjustments

JEL Classification: E02, E61, E62, H61

Suggested Citation

Chrysanthakopoulos, Christos and Tagkalakis, Athanasios, The effects of fiscal institutions on fiscal adjustments (October 1, 2022). Bank of Greece Working Paper No. 305
DOI: https://doi.org/10.52903/wp2022305, Available at SSRN: https://ssrn.com/abstract=4381453 or http://dx.doi.org/10.2139/ssrn.4381453

Christos Chrysanthakopoulos

Department of Economics, University of Patras

University Campus, Rio
Patras, 26500
Greece

Athanasios Tagkalakis (Contact Author)

Bank of Greece ( email )

21 E. Venizelos Avenue
GR 102 50 Athens
Greece

University of Patras

Patra
Greece

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