Determinants of fiscal rules

ABSTRACT

This article empirically assesses determinants of countries’ fiscal rules suggested by the political science, sociology and economics literature. We find several of these variables to be related to the stringency of fiscal rules, providing indirect evidence for the relevance of governments’ deficit bias. These determinants may also serve as instruments in models with (endogenous) fiscal rules as explanatory variable.

KEYWORDS:

• Fiscal rules
• deficit bias
• instrumental variables

JEL CLASSIFICATION:

• E62
• H30
• H60

Acknowledgements

Financial support by the Oesterreichische Nationalbank [OeNB-Anniversary-Fund, project number: 15469] is gratefully acknowledged. The views expressed in this article are those of the authors and do not necessarily reflect those of the Oesterreichische Nationalbank or the Eurosystem.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Variables in italics, detailed definitions and data sources are given in Table A1 in the Appendix.

² The general fiscal framework index, among others, accounts for the existence of multi-year frameworks, independent fiscal bodies and transparency and accountability laws.

³ We emphasize that our results are qualitatively unchanged if we use one-year or three-year time lags of the explanatory variables, though the fit of the empirical models becomes worse.

⁴ Using a general-to-specific approach including all variables, would result in the same set of variables.

Additional information

Funding

Financial support by the Oesterreichische Nationalbank [OeNB-Anniversary-Fund, project number: 15469] is gratefully acknowledged.