Fiscal Rules and Discretion in a World Economy
نویسندگان
چکیده
Governments are present-biased toward spending. Fiscal rules are deficit limits that trade off commitment to not overspend and flexibility to react to shocks. We compare centralized rules — chosen jointly by all countries — to decentralized rules. If governments’ present bias is small, centralized rules are tighter than decentralized rules: individual countries do not internalize the redistributive effect of interest rates. However, if the bias is large, centralized rules are slacker: countries do not internalize the disciplining effect of interest rates. Surplus limits and money burning enhance welfare, and inefficiencies arise if some countries adopt stricter rules than imposed centrally.
منابع مشابه
Designing a rule-based fiscal framework in Iran economy
The existence of a structural budget deficit in Iranian economy and the lack of fiscal discipline have raised concerns about the financial stability of governments among economists. In recent decades, fiscal rules have been considered as a way to establish fiscal discipline and financial sustainability of governments around the world. In this regard, the present study seeks to design a fiscal f...
متن کاملInflation Bias, Time Inconsistency of Monetary and Fiscal Policies and Institutional Quality
In developing countries, weak institutional quality can increase the probability of applying discretionary policies and can have a great impact on their double-digit inflation. Surico (2008) calculated inflation bias, but he considered just monetary policy and he did not pay attention to the institutions. Therefore, we design a model which considers the discretion in monetary and fiscal policie...
متن کاملDebt Level and Fiscal Rules in Iran According to Budget Structural Reform
Oil-exporting countries often escalate macroeconomic fluctuations by adopting cyclical fiscal policies. Empirical evidence shows that the main reason of instability in oil-exporting countries is the poor management of oil. In this study, after introducing a small open macroeconomic model with a dual managed floating exchange rate regime and estimating it using quarterly macroeconomic data of Ir...
متن کاملThe Tax and Petroleum Revenue Effect on Iran’s Public Expenditures (1994–2015), Employing Fiscal Illusion Approach
I ncreased expenditures and the government size is an important issue in public sector economics. In this regard, various theories have been developed in order to justify the reasons for the public expenditure growth, and the theories have been empirically tested. One of the outlooks explaining the government expenditures growth and the economy size, is fiscal illusion approach. According ...
متن کاملOptimal Monetary and Fiscal Policy at the Zero Lower Bound in a Small Open Economy∗
We study optimal monetary and fiscal policy at the zero lower bound in a small open economy model with sticky prices and a flexible exchange rate. In such a liquidity trap situation, the economy suffers from a negative output gap, producer price deflation, and an appreciated real exchange rate (compared to its efficient level). The extent of these adverse effects and the duration of the liquidi...
متن کامل