The Elusive Costs and the Immaterial Gains of Fiscal Constraints

35 Pages Posted: 22 Mar 2006

See all articles by Fabio Canova

Fabio Canova

BI Norwegian Business School

Evi Pappa

London School of Economics & Political Science (LSE); Autonomous University of Barcelona - Department of Economics and Economic History

Multiple version iconThere are 2 versions of this paper

Date Written: December 2005

Abstract

We study whether and how fiscal restrictions alter the business cycle features macrovariables for a sample of 48 US states. We also examine the 'typical' transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.

Keywords: Fiscal restrictions, excessive debt, business cycles, US states

JEL Classification: E3, E5, H7

Suggested Citation

Canova, Fabio and Pappa, Paraskevi (Evi), The Elusive Costs and the Immaterial Gains of Fiscal Constraints (December 2005). CEPR Discussion Paper No. 5406, Available at SSRN: https://ssrn.com/abstract=892877

Fabio Canova (Contact Author)

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Paraskevi (Evi) Pappa

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 7584 (Phone)
+44 20 7831 1840 (Fax)

Autonomous University of Barcelona - Department of Economics and Economic History ( email )

Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
12
Abstract Views
477
PlumX Metrics