In this paper, it is shown that, contrary to standard arguments, fiscal discipline is not substantially enhanced by a fixed exchange rate regime. This study is based on data from 116 countries collected from 1975 to 2004 and uses various estimation techniques for dynamic panel data, in...

In this paper, it is shown that, contrary to standard arguments, fiscal discipline is not substantially enhanced by a fixed exchange rate regime. This study is based on data from 116 countries collected from 1975 to 2004 and uses various estimation techniques for dynamic panel data, in...

Under fixed exchange rates, fiscal policy is an effective tool. According to classical views because it impacts the real exchange rate, according to Keynesian views because it impacts output. Both views have merit because the effects of government spending are asymmetric. A spending cut lowers...