The elusive costs and the immaterial gains of fiscal constraints

Fabio Canova; Evi Pappa

doi:https://doi.org/10.1016/j.jpubeco.2006.01.002

The elusive costs and the immaterial gains of fiscal constraints

Fabio Canova, Evi Pappa

Department of Economics and Economic History

Research output: Contribution to journal › Article › Research › peer-review

18 Citations (Scopus)

Abstract

We study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 US states. Fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways. The second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar. Excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place. Creative budget accounting may account for the results. © 2006 Elsevier B.V. All rights reserved.

Original language	English
Pages (from-to)	1391-1414
Journal	Journal of Public Economics
Volume	90
DOIs	https://doi.org/10.1016/j.jpubeco.2006.01.002
Publication status	Published - 1 Sep 2006

Keywords

Business cycles
Excessive debt
Fiscal restrictions
US states

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AB - We study whether fiscal restrictions affect volatilities and correlations of macrovariables and the probability of excessive debt for a sample of 48 US states. Fiscal constraints are characterized with a number of indicators and volatilities and correlations are computed in several ways. The second moments of macroeconomic variables in states with different fiscal constraints are economically and statistically similar. Excessive debt and the mechanism linking budget deficit and excessive debts are independent of whether tight or loose fiscal constraints are in place. Creative budget accounting may account for the results. © 2006 Elsevier B.V. All rights reserved.

KW - Business cycles

KW - Excessive debt

KW - Fiscal restrictions

KW - US states

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