Deficit limits, budget rules, and fiscal policy /

Deficit limits, budget rules, and fiscal policy /

Saved in:

Bibliographic Details
Author / Creator:	Manasse, Paolo, author.
Imprint:	[Washington, D.C.] : International Monetary Fund, Fiscal Affairs Dept., 2005.
Description:	1 online resource (19 pages) : illustrations
Language:	English
Series:	IMF working paper ; WP/05/120 IMF working paper ; WP/05/120.
Subject:	Fiscal policy -- Econometric models. Budget deficits -- Econometric models. Economic stabilization -- Econometric models. Budget deficits -- Econometric models. Economic stabilization -- Econometric models. Fiscal policy -- Econometric models.
Format:	E-Resource Book
URL for this record:	http://pi.lib.uchicago.edu/1001/cat/bib/12494847

Hidden Bibliographic Details
Other authors / contributors:	International Monetary Fund. Fiscal Affairs Department, issuing body.
ISBN:	1283512866 9781283512862 9781451906752 1451906757 1462311490 9781462311491 1452720908 9781452720906 9786613825315 661382531X
Notes:	"June 2005." Includes bibliographical references (page 19). English. Online resource; title from title screen (viewed on October 15, 2013).
Summary:	The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. I find that limits on deficit-output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in very "good" and very "bad" economic times. As a result, fiscal "reaction functions" are not monotonically related to the state of the economy. Deficit limits are found to exert discipline only provided the limit is tight and the expected sanction large, albeit at a relatively large welfare cost. Moreover, when fiscal choices are made under a veil of ignorance about the output gap, an increase in volatility is likely to raise the level of the budget deficit. Finally, concerning the design of fiscal frameworks, when excessive deficits arise from a political bias, deficit limits should be symmetric and not state-contingent
Other form:	Print version: Manasse, Paolo. Deficit limits, budget rules, and fiscal policy. [Washington, D.C.] : International Monetary Fund, Fiscal Affairs Dept., 2005

Description
Summary:	The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. I find that limits on deficit-output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in very "good" and very "bad" economic times. As a result, fiscal "reaction functions" are not monotonically related to the state of the economy. Deficit limits are found to exert discipline only provided the limit is tight and the expected sanction large, albeit at a relatively large welfare cost. Moreover, when fiscal choices are made under a veil of ignorance about the output gap, an increase in volatility is likely to raise the level of the budget deficit. Finally, concerning the design of fiscal frameworks, when excessive deficits arise from a political bias, deficit limits should be symmetric and not state-contingent.
Item Description:	"June 2005."
Physical Description:	1 online resource (19 pages) : illustrations
Bibliography:	Includes bibliographical references (page 19).
ISBN:	1283512866 9781283512862 9781451906752 1451906757 1462311490 9781462311491 1452720908 9781452720906 9786613825315 661382531X