This paper empirically assesses determinants of countries' fiscal rules suggested by the political science, sociology, and economics literature. We find several of these variables to be related to the stringency of fiscal rules, providing indirect evidence for the relevance of governments' deficit bias. These determinants may also serve as instruments in models with (endogenous) fiscal rules as explanatory variable.

We analyse the role played by data and specification choices as determinants of the size of the fiscal multipliers obtained using structural vector autoregressive models. The results, based on over twenty million fiscal multiplier estimated for European countries, indicate that many seemingly harmless modelling choices have a significant effect on the size and precision of fiscal multiplier estimates. In addition to the structural shock identification strategy, these modelling choices include the definition of spending and taxes, the national accounts system employed, the use of particular interest rates or inflation measures, or whether data are smoothed prior to estimation. / Series: Department of Economics Working Paper Series

This paper investigates the relationship between countries' fiscal balances and current accounts with an emphasis on the role of fiscal rules. The direct effect of fiscal policy on the current account via aggregate (import) demand is potentially amplified by indirect effects, materializing through interest rate effects and inter-generational transfers that reduce savings. On the other hand, the implied positive relation between fiscal and external balances is potentially attenuated by offsetting changes in savings through Ricardian equivalence considerations. We expect this attenuation effect to be stronger in countries with more stringent fiscal rules and test this hypothesis using a panel of 73 countries over the period 1985-2012. As previous studies we find a positive effect of fiscal balances on the current account, supporting the twin deficit hypothesis. However, the effect of fiscal balances on the current account depends on the stringency of fiscal (budget balance or debt) rules in place; it is reduced by one third on average and virtually eliminated for countries with the most stringent fiscal rules. (authors' abstract) / Series: Department of Economics Working Paper Series

We generalize a simple New Keynesian model and show that a flattening of the Phillips curve reduces the size of fiscal multipliers at the zero lower bound (ZLB) on the nominal interest rate. The factors behind the flatting are consistent with micro- and macroeconomic empirical evidence: it is a result of, not a higher level of price rigidity, but an increase in the degree of strategic complementarity in price-setting -- invoked by the assumption of a specific instead of an economy-wide labour market, and decreasing instead of constant-returns-to-scale. In normal times, the efficacy of fiscal policy and resulting multipliers tends to be small because negative wealth effects crowd out consumption, and because monetary policy endogenously reacts to fiscally-driven increases in inflation and output by raising rates, offsetting part of the stimulus. In times of a binding ZLB and a fixed nominal rate, an increase in (expected) inflation instead lowers the real rate, leading to larger fiscal multipliers. Conditional on being in a ZLB-environment, under a flatter Phillips curve, increases in expected inflation are lower, so that fiscal multipliers at the ZLB tend to be lower. Finally, we also discuss the role of solution methods in determining the size of fiscal multipliers. / Series: Department of Economics Working Paper Series

This paper estimates the effects of fiscal institutions on fiscal policy outcomes, addressing issues related to measurement and endogeneity in a novel way. Recently developed indices, based on partially ordered set theory, are used to quantify the stringency of fiscal rules. Identification of their effects is achieved by exploiting the exogeneity of institutional variables (checks and balances, government fragmentation, inflation targeting), which are found to be relevant determinants of fiscal rules. Our two-stage least squares estimates for (up to) 79 countries over the period 1985-2012 provide strong evidence that countries with more stringent fiscal rules have higher fiscal balances (lower deficits), lower interest rate spreads on government bonds, and lower output volatility. (authors' abstract) / Series: Department of Economics Working Paper Series

This paper develops a model in which it is possible to evaluate alternatives of higher education financing. The alternative systems under discussion are: total fecing, graduates' taxes and uniform taxes (this can be associated to the scheme presently used in the Argentina to finance the universities). Assessment of the alternatives is performed over welfare, based on the indicators of poverty, equality, and the average levels of utility and wealth. Likewise, the functions of welfare presented by Bentham, Rawls, Atkinson, Sen and Kakwani are also considered. The most remarkable results are obtained through the simulation of an economy under two scenarios. In that way, the system of graduates' taxation is found to be better for welfare; whereas the system of uniform taxation only can be justified as it maximizes the number of students.

We use survey findings to analyse the effects of the Austrian income tax reform 2015/2016 on private consumption differentiated by income classes. Using survey data, we also estimate the corresponding average marginal propensities to consume and compare them to applied average marginal propensities to consume in economic models used to analyse the previous two income tax reforms in Austria. The estimated average marginal propensity to consume amounts to approximately 0.46, whereby in tendency increasing from the lowest income class (0.42-0.43) to the highest income class (0.48-0.50). Our estimated average marginal propensity to consume across all income classes basically corresponds to those used in economic models to evaluate the income tax reform 2015/2016. However, our estimated marginal propensities to consume by income classes fundamentally differ from those used in the economic models. / Series: Department of Economics Working Paper Series

Based on the political economy of the media perspective, this paper explores the media coverage of wealth and inheritance taxation over the early 21st century (2000 to 2018) based on a large-scale corpus of seven German daily and weekly newspapers. Germany is a useful case study, being one of the most unequal countries in the Eurozone area in terms of wealth inequality. Drawing on text mining methods and corpus linguistics, it shows that wealth and inheritance taxation is a relatively infrequent topic over the entire period, with the exception of a few intense months of increased reporting. On the occasions that the media do report on the topic of wealth and inheritance taxation, it is mainly covered in terms of a political debate. This debate centres on the politics of a possible reform process and the connected difficulties of finding compromise between different actors, rather than focussing on the potential economic impact. Furthermore, this paper explores the power of agents (both on the organisational and individual level) as the primary definers of social reality. It shows that market-liberal and conservative organisations and economists dominate the news over social-democratic and left-wing ones. Overall, the findings indicate a hostile news coverage concerning the introduction of wealth taxation and the increase of inheritance tax. / Series: Department of Economics Working Paper Series

This paper investigates several possible reasons for the exceptional period of growth in the nineties in the US.. These years can be characterised as a case of an expansionary fiscal consolidation as strong growth and structural surpluses were observed. Five different channels, the literature suggests for relationships between government spending and consumption are investigated. There are hints that the economy did not work in a Keynesian way but there is no proof of the existence of a Non-Keynesian effect. Expectational effects could not be separated empirically from asset wealth. Whereas standard consumption estimations failed, a model adding a factor containing asset wealth and expectations was finally able to explain consumption from 1996 onwards. This has important implications for policy. Moreover, compositional effects were found to be important. The two main findings of the paper, namely an asset wealth/expectations effect and compositional effects support the interpretation of a positive link between public savings, asset values and growth. (author's abstract) / Series: Department of Economics Working Paper Series

Previous studies have discounted important factors and indirect channels that might contribute to business cycle synchronization (BSC) in the EU. We estimate the effects of market integration and economic policy coordination on bilateral business cycle correlations over the period 1995-2012 using a simultaneous equations model that takes into accounts both the endogenous relationships and unveils direct and indirect effects. The results suggest that (i) trade and FDI have a pronounced positive effect on BCS, particularly between incumbent and new EU members. (ii) Rising specialization does not decouple business cycles. (iii) The decline of income disparities in EU27 contributes to BCS, as converging countries develop stronger trade and FDI linkages. (iv) There is strong evidence that poor fiscal discipline of EU members is a major impediment of business cycle synchronization. (v) The same argument holds true for exchange rate fluctuations that hinder BCS, particularly in EU15. Since BCS is a fundamental prerequisite and objective in an effective monetary union, the EU has to promote market integration and strengthen the common setting of economic policies.