Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
IDEAS home Printed from https://ideas.repec.org/p/ulp/sbbeta/2021-38.html
   My bibliography  Save this paper

Fiscal rules’ compliance and Social Welfare

Author

Listed:
  • Kea BARET

Abstract

This paper studies the side-effects of fiscal rules’ compliance on the economy and social welfare. It considers Budget Balance Rules’ (BBR) compliance effects on maroeconomic indicators and social welfare proxy indicators in sixteen countries between 2004 and 2015. Instead of fiscal rules strength or fiscal rules presence effectiveness, we focus on fiscal rules’ compliance to assess the impact of governments behavior on the social area. The paper shows that governments go beyond the expected trade-off between BBR’s compliance and GDP Growth by operating a reallocation of their spending. Such choices in public expense lead to an increase in social inequalities highlighted that governments finally face a trade-off between fiscal rules’ compliance and social objectives. The analysis constitutes the first use of double/debiased machine learning for treatment recently developed by Chernozhukov et al. [2018] applied to fiscal discipline issues. Through this method we are able to highlight key determinants for BBR’s compliance and assess the compliance’s effect on different macroeconomic and social indicators. We take care of Voter Preferences by computing a new proxy though Latent Factor Analysis Approach, and show that Voter prefenreces appear as a key variable for BBR’s compliance, giving an empirical proof that Wyplosz [2012]’s bias matters.

Suggested Citation

  • Kea BARET, 2021. "Fiscal rules’ compliance and Social Welfare," Working Papers of BETA 2021-38, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    • Handle: RePEc:ulp:sbbeta:2021-38
    as

    Download full text from publisher

    File URL: http://beta.u-strasbg.fr/WP/2021/2021-38.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Larch, Martin & Orseau, Eloïse & van der Wielen, Wouter, 2021. "Do EU fiscal rules support or hinder counter-cyclical fiscal policy?," Journal of International Money and Finance, Elsevier, vol. 112(C).
    2. Victor Chernozhukov & Denis Chetverikov & Mert Demirer & Esther Duflo & Christian Hansen & Whitney Newey & James Robins, 2018. "Double/debiased machine learning for treatment and structural parameters," Econometrics Journal, Royal Economic Society, vol. 21(1), pages 1-68, February.
    3. António Afonso & João Tovar Jalles & Ana Venâncio, 2021. "Taxation and Public Spending Efficiency: An International Comparison," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 356-383, September.
    4. Sugata Ghosh & Udayan Roy, 2004. "Fiscal policy, long‐run growth, and welfare in a stock‐flow model of public goods," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 37(3), pages 742-756, August.
    5. Amélie Barbier-Gauchard & Kea Baret & Alexandru Minea, 2021. "National fiscal rules and fiscal discipline in the European Union," Applied Economics, Taylor & Francis Journals, vol. 53(20), pages 2337-2359, April.
    6. Heinemann, Friedrich & Moessinger, Marc-Daniel & Yeter, Mustafa, 2018. "Do fiscal rules constrain fiscal policy? A meta-regression-analysis," European Journal of Political Economy, Elsevier, vol. 51(C), pages 69-92.
    7. Susan Athey & Julie Tibshirani & Stefan Wager, 2016. "Generalized Random Forests," Papers 1610.01271, arXiv.org, revised Apr 2018.
    8. Mr. Xavier Debrun & Mr. Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence," IMF Working Papers 2007/171, International Monetary Fund.
    9. Aiyagari, S. Rao & McGrattan, Ellen R., 1998. "The optimum quantity of debt," Journal of Monetary Economics, Elsevier, vol. 42(3), pages 447-469, October.
    10. Burbidge, John B, 1983. "Government Debt in an Overlapping-Generations Model with Bequests and Gifts," American Economic Review, American Economic Association, vol. 73(1), pages 222-227, March.
    11. Alexandre Belloni & Victor Chernozhukov & Denis Chetverikov & Christian Hansen & Kengo Kato, 2018. "High-dimensional econometrics and regularized GMM," CeMMAP working papers CWP35/18, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    12. Reuter, Wolf Heinrich, 2019. "When and why do countries break their national fiscal rules?," European Journal of Political Economy, Elsevier, vol. 57(C), pages 125-141.
    13. Buhlmann P. & Yu B., 2003. "Boosting With the L2 Loss: Regression and Classification," Journal of the American Statistical Association, American Statistical Association, vol. 98, pages 324-339, January.
    14. Beetsma, Roel & Debrun, Xavier & Fang, Xiangming & Kim, Young & Lledó, Victor & Mbaye, Samba & Zhang, Xiaoxiao, 2019. "Independent fiscal councils: Recent trends and performance," European Journal of Political Economy, Elsevier, vol. 57(C), pages 53-69.
    15. Michael C. Lovell, 1963. "Seasonal Adjustment of Economic Time Series and Multiple Regression," Cowles Foundation Discussion Papers 151, Cowles Foundation for Research in Economics, Yale University.
    16. Mar Delgado-Téllez & Víctor D. Lledó & Javier J. Pérez, 2016. "On the determinants of fiscal non-compliance: an empirical analysis of spain’s regions," Working Papers 1632, Banco de España.
    17. Tapsoba, René, 2012. "Do National Numerical Fiscal Rules really shape fiscal behaviours in developing countries? A treatment effect evaluation," Economic Modelling, Elsevier, vol. 29(4), pages 1356-1369.
    18. Bohn, Henning & Inman, Robert P., 1996. "Balanced-budget rules and public deficits: evidence from the U.S. states," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 13-76, December.
    19. Debrun, Xavier & Jonung, Lars, 2019. "Under threat: Rules-based fiscal policy and how to preserve it," European Journal of Political Economy, Elsevier, vol. 57(C), pages 142-157.
    20. Jean-Louis Combes & Alexandru Minea & Cezara Vinturis & Pegdéwendé Nestor Sawadogo, 2019. "Can fiscal rules curb income inequality? Evidence from developing countries," Working Papers halshs-02423126, HAL.
    21. Luc Eyraud & Xavier Debrun & Andrew Hodge & Victor Duarte Lledo & Catherine A Pattillo, 2018. "Second-Generation Fiscal Rules; Balancing Simplicity, Flexibility, and Enforceability," IMF Staff Discussion Notes 18/04, International Monetary Fund.
    22. Hediger, Werner, 2000. "Sustainable development and social welfare," Ecological Economics, Elsevier, vol. 32(3), pages 481-492, March.
    23. Henning Bohn & Robert P. Inman, "undated". "Balanced Budget Rules and Public Deficits: Evidence from the U.S. States (Reprint 060)," Rodney L. White Center for Financial Research Working Papers 10-96, Wharton School Rodney L. White Center for Financial Research.
    24. Jean‐Louis Combes & Xavier Debrun & Alexandru Minea & René Tapsoba, 2018. "Inflation Targeting, Fiscal Rules and the Policy Mix: Cross‐effects and Interactions," Economic Journal, Royal Economic Society, vol. 128(615), pages 2755-2784, November.
    25. Mark J. Ellyne & Martin W. Nandelenga, 2020. "Fiscal Rules and the Compliance debate: Why do Countries adopt Rules and fail to comply?," Working Papers 815, Economic Research Southern Africa.
    26. Sugata Ghosh & Udayan Roy, 2004. "Fiscal policy, long-run growth, and welfare in a stock-flow model of public goods," Canadian Journal of Economics, Canadian Economics Association, vol. 37(3), pages 742-756, August.
    27. Gerdie Everaert & Freddy Heylen & Ruben Schoonackers, 2015. "Fiscal policy and TFP in the OECD: measuring direct and indirect effects," Empirical Economics, Springer, vol. 49(2), pages 605-640, September.
    28. Maxime Fajeau, 2021. "Too much finance or too many weak instruments?," International Economics, CEPII research center, issue 165, pages 14-36.
    29. Sacchi, Agnese & Salotti, Simone, 2015. "The impact of national fiscal rules on the stabilisation function of fiscal policy," European Journal of Political Economy, Elsevier, vol. 37(C), pages 1-20.
    30. Susan Athey, 2018. "The Impact of Machine Learning on Economics," NBER Chapters, in: The Economics of Artificial Intelligence: An Agenda, pages 507-547, National Bureau of Economic Research, Inc.
    31. Kéa Baret & Amélie Barbier-Gauchard & Théophilos Papadimitriou, 2021. "Forecasting the Stability and Growth Pact compliance using Machine Learning," Working Papers of BETA 2021-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    32. Acemoglu, Daron, 2003. "Why not a political Coase theorem? Social conflict, commitment, and politics," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 620-652, December.
    33. Lawler, Phillip, 2001. "Monetary Policy, Central Bank Objectives, and Social Welfare with Strategic Wage Setting," Oxford Economic Papers, Oxford University Press, vol. 53(1), pages 94-113, January.
    34. repec:hal:wpaper:hal-03121966 is not listed on IDEAS
    35. Antonio Afonso & Ludger Schuknecht & Vito Tanzi, 2010. "Public sector efficiency: evidence for new EU member states and emerging markets," Applied Economics, Taylor & Francis Journals, vol. 42(17), pages 2147-2164.
    36. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union [‘Constitutions, politics, and economics’]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 23(54), pages 298-362.
    37. Wolfgang Härdle & Yuh-Jye Lee & Dorothea Schäfer & Yi-Ren Yeh, 2009. "Variable selection and oversampling in the use of smooth support vector machines for predicting the default risk of companies," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 28(6), pages 512-534.
    38. Susan Athey & Guido W. Imbens, 2017. "The State of Applied Econometrics: Causality and Policy Evaluation," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 3-32, Spring.
    39. Sendhil Mullainathan & Jann Spiess, 2017. "Machine Learning: An Applied Econometric Approach," Journal of Economic Perspectives, American Economic Association, vol. 31(2), pages 87-106, Spring.
    40. Jochen Hartwig & Jan Egbert Sturm, 2019. "Do fiscal rules breed inequality? First evidence for the EU," Economics Bulletin, AccessEcon, vol. 39(2), pages 1508-1515.
    41. Reuter, Wolf Heinrich, 2015. "National numerical fiscal rules: Not complied with, but still effective?," European Journal of Political Economy, Elsevier, vol. 39(C), pages 67-81.
    42. repec:dau:papers:123456789/15002 is not listed on IDEAS
    43. Hal R. Varian, 2014. "Big Data: New Tricks for Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 28(2), pages 3-28, Spring.
    44. Mr. George Kopits & Mr. Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 1998/011, International Monetary Fund.
    45. Guerguil, Martine & Mandon, Pierre & Tapsoba, René, 2017. "Flexible fiscal rules and countercyclical fiscal policy," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 189-220.
    46. Marini, Francois, 2005. "Banks, financial markets, and social welfare," Journal of Banking & Finance, Elsevier, vol. 29(10), pages 2557-2575, October.
    47. Mr. Luc Eyraud & Mr. Xavier Debrun & Andrew Hodge & Victor Duarte Lledo & Ms. Catherine A Pattillo, 2018. "Second-Generation Fiscal Rules: Balancing Simplicity, Flexibility, and Enforceability," IMF Staff Discussion Notes 2018/004, International Monetary Fund.
    48. Funk, Patricia & Gathmann, Christina, 2013. "Voter preferences, direct democracy and government spending," European Journal of Political Economy, Elsevier, vol. 32(C), pages 300-319.
    49. Gogas, Periklis & Papadimitriou, Theophilos & Agrapetidou, Anna, 2018. "Forecasting bank failures and stress testing: A machine learning approach," International Journal of Forecasting, Elsevier, vol. 34(3), pages 440-455.
    50. Bergman, U. Michael & Hutchison, Michael M. & Jensen, Svend E. Hougaard, 2016. "Promoting sustainable public finances in the European Union: The role of fiscal rules and government efficiency," European Journal of Political Economy, Elsevier, vol. 44(C), pages 1-19.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Amélie Barbier-Gauchard & Kea Baret & Alexandru Minea, 2021. "National fiscal rules and fiscal discipline in the European Union," Applied Economics, Taylor & Francis Journals, vol. 53(20), pages 2337-2359, April.
    2. Kea BARET & Theophilos PAPADIMITRIOU, 2019. "On the Stability and Growth Pact compliance: what is predictable with machine learning?," Working Papers of BETA 2019-48, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    3. Kea BARET, 2021. "Fiscal rules’ compliance and Social Welfare," Working Papers of BETA 2021-50, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Kéa Baret & Amélie Barbier-Gauchard & Théophilos Papadimitriou, 2021. "Forecasting the Stability and Growth Pact compliance using Machine Learning," Working Papers of BETA 2021-01, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    5. Thomas Brändle & Marc Elsener, 2024. "Do fiscal rules matter? A survey of recent evidence," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 160(1), pages 1-38, December.
    6. Brändle, Thomas & Elsener, Marc, 2023. "Do fiscal rules matter? A survey on recent evidence," Working papers 2023/07, Faculty of Business and Economics - University of Basel.
    7. López-Herrera, Carmen & Cordero, José M. & Pedraja-Chaparro, Francisco & Polo, Cristina, 2023. "Fiscal rules and their influence on public sector efficiency," MPRA Paper 119018, University Library of Munich, Germany.
    8. Cezara Vinturis, 2019. "A multi-speed fiscal Europe? Fiscal Rules and Fiscal Performance in the EU Former Communist Countries," Working Papers hal-03097483, HAL.
    9. Amelie BARBIER-GAUCHARD & Kea BARET & Alexandru MINEA, 2019. "National Fiscal Rules Adoption and Fiscal Discipline in the European Union," Working Papers of BETA 2019-40, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    10. Cezara Vinturis, 2023. "How do fiscal rules shape governments' spending behavior?," Economic Inquiry, Western Economic Association International, vol. 61(2), pages 322-341, April.
    11. Caselli, Francesca & Wingender, Philippe, 2021. "Heterogeneous effects of fiscal rules: The Maastricht fiscal criterion and the counterfactual distribution of government deficits✰," European Economic Review, Elsevier, vol. 136(C).
    12. Ryota Nakatani, 2021. "Fiscal Rules for Natural Disaster- and Climate Change-Prone Small States," Sustainability, MDPI, vol. 13(6), pages 1-26, March.
    13. Caselli, Francesca & Reynaud, Julien, 2020. "Do fiscal rules cause better fiscal balances? A new instrumental variable strategy," European Journal of Political Economy, Elsevier, vol. 63(C).
    14. Herrero-Alcalde, Ana & Martín-Román, Javier & Tránchez-Martín, José Manuel & Moral-Arce, Ignacio, 2024. "Fiscal rules to the test: The impact of the Spanish expenditure rule," European Journal of Political Economy, Elsevier, vol. 81(C).
    15. Sawadogo, Pegdéwendé Nestor, 2020. "Can fiscal rules improve financial market access for developing countries?," Journal of Macroeconomics, Elsevier, vol. 65(C).
    16. Ardanaz, Martín & Ulloa-Suárez, Carolina & Valencia, Oscar, 2024. "Why don't we follow the rules? Drivers of compliance with fiscal policy rules in emerging markets," Journal of International Money and Finance, Elsevier, vol. 142(C).
    17. Carlos Fonseca Marinheiro, 2021. "The Expenditure Benchmark: Complex and Unsuitable for Independent Fiscal Institutions," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(3), pages 411-431, September.
    18. Niklas Potrafke, 2023. "The Economic Consequences of Fiscal Rules," CESifo Working Paper Series 10765, CESifo.
    19. Jocelyne Zoumenou & Antonia Lopez Villavicencio, 2024. "Do Binding Fiscal Rules Enhance Fiscal Stability? Evidence from European Union Countries," EconomiX Working Papers 2024-29, University of Paris Nanterre, EconomiX.
    20. Mihaela Onofrei & Tudorel Toader & Anca Florentina Vatamanu & Florin Oprea, 2021. "Impact of Governments’ Fiscal Behaviors on Public Finance Sustainability: A Comparative Study," Sustainability, MDPI, vol. 13(7), pages 1-16, March.

    More about this item

    Keywords

    Fiscal rules’ compliance; Social Welfare; Fiscal Surveillance; Machine learning.;
    All these keywords.

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2021-38. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bestrfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.