Restraining Yourself: Fiscal Rules and Stabilization

Bayoumi, Tamim; Eichengreen, Barry

Download This Paper

Open PDF in Browser

Add Paper to My Library

Restraining Yourself: Fiscal Rules and Stabilization

IMF Working Paper No. 94/82

24 Pages Posted: 15 Feb 2006

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Barry Eichengreen

University of California, Berkeley; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: July 1994

Abstract

State budgets in the United States played a significant macroeconomic role in the 1970s and 1980s, and the level of cyclical responsiveness was affected by the severity of statutory and constitutional fiscal restraints. Moving from no fiscal restraints to the most stringent restraints lowered the fiscal offset to income fluctuations by around 40 percent. Simulations indicate that a reduction in aggregate fiscal stabilizers of this size could lead to a significant increase in the variance of aggregate output.

Keywords: Fiscal stabilization, fiscal restraints

JEL Classification: E62, H61, H74

Suggested Citation: Suggested Citation

Bayoumi, Tamim and Eichengreen, Barry, Restraining Yourself: Fiscal Rules and Stabilization (July 1994). IMF Working Paper No. 94/82, Available at SSRN: https://ssrn.com/abstract=883808