On Promoting Fiscal Discipline : The Role of Exchange Rate Regimes, Fiscal Rules and Institutions
This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product). The analysis is performed on a panel...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/963111565102845593/On-Promoting-Fiscal-Discipline-The-Role-of-Exchange-Rate-Regimes-Fiscal-Rules-and-Institutions http://hdl.handle.net/10986/32216 |
| Summary: | This paper examines how fiscal rules,
exchange rate regimes, and institutional quality affect the
cyclical behavior of fiscal policy (how government spending
responds to fluctuations in gross domestic product). The
analysis is performed on a panel of 153 advanced, emerging,
and developing countries over 1993-2015 using local
Gaussian-weighted ordinary least squares and two-stage least
squares estimators. The findings show that the adoption of
fiscal rules alone is not sufficient to promote
countercyclical fiscal policy and should be combined with
strong institutions. Moreover, fiscal rules seem to limit
procyclicality, especially in countries with flexible
exchange rate regimes rather than in countries with fixed
exchange rates. The analysis also finds that the
disciplining effect of fiscal rules depends on the type of rule. |
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