The elusive costs and the immaterial gains of fiscal constraints

Fabio Canova, Evi Pappa

Research output: Contribution to journalArticleResearchpeer-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 languageEnglish
Pages (from-to)1391-1414
JournalJournal of Public Economics
Volume90
DOIs
Publication statusPublished - 1 Sep 2006

Keywords

  • Business cycles
  • Excessive debt
  • Fiscal restrictions
  • US states

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