We estimate cross-border spillover effects of fiscal consolidation episodes on output, bilateral trade flows, interest rate, and the exchange rate, employing the new IMF action-based fiscal consolidation data. Results indicate a negative effect of foreign fiscal consolidation policies on...

This paper derives and estimates rules for fiscal policy that prescribe the optimal response to changes in unemployment and debt. We combine the reduced-form model of the economy from a linear VAR with a non-linear welfare function and obtain analytic solutions for optimal policy. The variables...

We examine fiscal adjustment episodes in 24 OECD countries in order to find how austerity affects debt and growth, and whether the choice of fiscal instrument matters for the results. Influential existing studies argue that spending cuts are more likely to successfully reduce debt and enhance...

This paper studies the impact of national fiscal rules on government size as measured by the ratio of government expenditures to gross domestic product. We develop a model of the budgetary process and show that a common pool problem may arise which can be mitigated through fiscal rules. We test...

Fiscal restraints have been argued to force today’s governments to internalize the externalities that result from extensive borrowing on future electorates and governments as well as on other countries by causing fiscal instability. In this article we provide an alternative argument for fiscal...

The fiscal commons problem is one of the most prominent explanations of excessive spending and indebtedness in political economics. The more fragmented a government, the higher its spending, deficits and debt. In this paper we investigate to what extent this problem can be mitigated by different...

This paper surveys the empirical research on fiscal institutions of the last three decades. The main results are: (i) Constitutional or statutory fiscal limitations have in most cases proved to be effective in cutting down public expenditure, revenue, and debt. (ii) Budgetary proce-dures matter...

This paper explores the role of political stability on fiscal policy choices in a time-series ana-lysis over 158 years on the Swiss federal level. We argue that the fiscal-commons problem of public finances is affected by the time-horizon of a finance minister. Arguably, the incentives for an...

High employment protection in the public sector results in strategic over-employment if government divisions compete for budgets in a dynamic setting. Bureaucrats who are interested in maximising their divisions’ output employ excess labor, since this induces the sponsor to provide...

A common political claim is that decentralized governments undermine policy makers’ ability to fight fiscal imbalance. This paper examines how different fiscal institutions influence the likelihood of a successful fiscal adjustment. Using a panel of the Swiss cantons from 1981 to 2001, we...