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.

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

A proposta da tese é explorar como a interação entre abertura política, redemocratização e mudança no contrato social contribuíram para o aumento do tamanho do governo e do gasto no Brasil. Dessa forma, a tese sugere a persistência de um padrão de política fiscal que prevaleceu após a Constituição Federal de 1988, encontrado no governo central e nos governos subnacionais, cujo padrão é formado por: i) pressão pelo aumento do tamanho do governo; ii) crescimento da despesa corrente em relação ao investimento; iii) comportamento pró-cíclico do gasto e presença do efeito voracidade. A hipótese explorada na tese é que o padrão de política fiscal possui como origem o equilíbrio que emergiu com a abertura política e a redemocratização na década de 1980, onde foram incorporadas as demandas por bens públicos (educação, saúde, proteção social, por exemplo) e a maior ênfase pelas políticas redistributivas, oriundas do aprofundamento da democracia e da presença do sufrágio universal. Ao mesmo tempo, o equilíbrio sugere a necessidade de acomodar os grupos de interesse (elites empresariais e do funcionalismo público, por exemplo) que aparelham o estado e buscam defender e ampliar seus privilégios, especialmente em relação aos benefícios tributários, acesso aos recursos orçamentários e prioridade no direcionamento do gasto do governo. Assim, a viabilidade do equilíbrio depende do crescimento do tamanho do governo que serve para minimizar os conflitos entre grupos de interesse, também preservar a paz social e a estabilidade política. No entanto, o equilíbrio contribui para fortalecer a percepção de ilusão fiscal sobre as limitações e as restrições de curto e longo prazo que a política fiscal está submetida, eclipsando como são distribuídos os custos e os benefícios das ações do governo. A contribuição da tese é aprofundar a discussão sobre como o funcionamento de uma democracia iliberal (nova democracia ou democracia não consolidada) e a alteração no contrato social em um ambiente de instituições frágeis são capazes de influir sobre o tamanho do governo e o comportamento do gasto no curto e longo prazo. Além disso, a tese busca explorar quais seriam os problemas fiscais, as potenciais fragilidades, os canais e mecanismos de transmissão que relacionam uma democracia não consolidada e os problemas fiscais, tomando como estudo de caso a experiência brasileira. / The main objective of this thesis is to explore the interaction between the democratization process and change of social contract on government size and public spending in Brazil. The hypothesis of the thesis is the persistence of a fiscal policy pattern, present in both central government and subnational governments, composed of the following characteristics: i) increased pressure for increasing government size; ii) growth of current expenditure in relation to investment; and iii) procyclical and voracity effect. This fiscal policy pattern has its origin in the democratization process in the 1980s, with demands of society for public goods (education, health, social security, for example) and redistribution policies, stemming from the deepening of democracy and the presence of universal suffrage. Alongside, the emerging equilibrium suggests the need to accommodate interest groups (business elites and civil servant, for example) that equip the state and seek to defend and expand their privileges, especially in relation to tax benefits, access to budgetary resources and defense of priority in spending. So, the viability of this balance depends on the growth of government size that serves to minimize conflicts between interest groups, also preserving social and politics stability. However, the equilibrium contributes to strengthening the fiscal illusion about the short and long-term limitation of the budget and fiscal policy. The contribution of the thesis is to deepen the discussion about how the functioning of an illiberal democracy (or new democracy) and the change in the social contract in an environment of weak institutions can influence government size and the behavior of spending in the short and long term. In addition, the thesis seeks to explore what the fiscal problems, potential weaknesses and channels of transmission that relate to illiberal democracy and fiscal problems are, taking Brazil as a case study.

The objectives of the study are to assess the fiscal sustainability and development impacts of Ghana’s fiscal rule for allocating petroleum revenues to the annual budget against alternative fiscal rules - the permanent income and the bird-in-hand rules. Fiscal sustainability is measured by government long-term fiscal space in proportion to non-oil GDP, whilst development impacts are measured through a dynamic CGE model of Ghana. Generally, the study makes four important findings on how fiscal policy triggered by the inflow of new petroleum revenues could affect the long-term fiscal sustainability and growth of the economy. One, Ghana’s fiscal rule is neither fiscally sustainable nor provide higher impacts of petroleum revenues on economic development relative to the permanent income and the bird-in-hand rules. Two, fiscal sustainability does not necessarily lead to greater development outcomes. The bird-in-hand rule is the most fiscally sustainable, but the permanent income rule provides higher development outcomes and can move Ghana’s transformation towards a full middle income status. Three, institutional quality in a country could lead to efficiency gains in government spending. Four, efficiency in government spending could improve on development outcomes. Ghana could therefore benefit from its petroleum revenues by adopting the permanent income rule; and with temporary petroleum revenues, the focus of the country should be on current investment of petroleum revenues in building the country’s asset base to support short-term and long-term growth of the economy. However, this should be complemented with strengthening the quality of institutional arrangements to enhance efficiency in government spending.

Chapter 1 evaluates the effect of relaxing fiscal rules on policy outcomes applying a quasi-experimental research design. We implement a "difference-in-discontinuities" design by combining the before/after with the discontinuous policy variation generated by the implementation of the Domestic Stability Pact on Italian municipalities between 1999 and 2004. Our estimates show that relaxing fiscal rules triggers a substantial deficit bias, captured by a shift from a balanced budget to a deficit that amounts to 2 percent of the total budget. The deficit comes primarily from reduced revenues as unconstrained municipalities have lower real estate and income tax rates. The impact is larger if the mayor can run for reelection, the number of political parties seated in the city council is higher, voters are older, the performance of the mayor in providing public good is lower, and cities are characterized by historical deficit, consistently with models on the political economy of fiscal adjustment. Chapter 2 studies the electoral response to the Ghost Buildings program, a nationwide anti tax evasion policy in Italy, which used innovative monitoring technologies to target buildings hidden from tax authorities. The difference-in-differences identification strategy exploits both variation across towns in the ex ante program scope to increase enforcement as well as administrative data on actual building registrations. After the policy, local incumbents experience an increase in their reelection likelihood. These political returns are higher in areas with higher speed of public good provision and with lower tax evasion tolerance, implying complementarity among enforcement policies, government efficiency, and the underlying tax culture. Chapter 3 examines reasons for cross-country variation in maternity leave provision. We show that the less tolerant a society is of gender-based discrimination, the longer the maternity leave it will optimally mandate. We collected new data on the number of gender-differentiated personal pronouns across languages to capture societies' attitudes toward gender-based discrimination. We first confirm, using within-country language variation, that our linguistic measure is correlated with attitudes toward gender-based discrimination. Then, using cross-country data on length of maternity leave we find a strong correlation between our measure of attitudes and the length of maternity leave. / Economics

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

Data on (economic) institutions are often available only as observations on ordinal, inherently incomparable properties, which are then typically aggregated to a composite index in the empirical social science literature. From a methodological perspective, the present paper advocates the application of partially ordered set (POSET) theory as an alternative approach. Its main virtue is that it takes the ordinal nature of the data seriously and dispenses with the unavoidably subjective assignment of weights to incomparable properties, maintains a high standard of objectivity, and can be applied in various fields of economics. As an application, the POSET approach is then used to calculate new indices on the stringency of fiscal rules for 81 countries over the period 1985 to 2012 based on recent data by the IMF (2012). The derived measures of fiscal rules are used to test their significance for public finances in a fiscal reaction function and compare the POSET with the composite index approach. (authors' abstract)

A proposta da tese é explorar como a interação entre abertura política, redemocratização e mudança no contrato social contribuíram para o aumento do tamanho do governo e do gasto no Brasil. Dessa forma, a tese sugere a persistência de um padrão de política fiscal que prevaleceu após a Constituição Federal de 1988, encontrado no governo central e nos governos subnacionais, cujo padrão é formado por: i) pressão pelo aumento do tamanho do governo; ii) crescimento da despesa corrente em relação ao investimento; iii) comportamento pró-cíclico do gasto e presença do efeito voracidade. A hipótese explorada na tese é que o padrão de política fiscal possui como origem o equilíbrio que emergiu com a abertura política e a redemocratização na década de 1980, onde foram incorporadas as demandas por bens públicos (educação, saúde, proteção social, por exemplo) e a maior ênfase pelas políticas redistributivas, oriundas do aprofundamento da democracia e da presença do sufrágio universal. Ao mesmo tempo, o equilíbrio sugere a necessidade de acomodar os grupos de interesse (elites empresariais e do funcionalismo público, por exemplo) que aparelham o estado e buscam defender e ampliar seus privilégios, especialmente em relação aos benefícios tributários, acesso aos recursos orçamentários e prioridade no direcionamento do gasto do governo. Assim, a viabilidade do equilíbrio depende do crescimento do tamanho do governo que serve para minimizar os conflitos entre grupos de interesse, também preservar a paz social e a estabilidade política. No entanto, o equilíbrio contribui para fortalecer a percepção de ilusão fiscal sobre as limitações e as restrições de curto e longo prazo que a política fiscal está submetida, eclipsando como são distribuídos os custos e os benefícios das ações do governo. A contribuição da tese é aprofundar a discussão sobre como o funcionamento de uma democracia iliberal (nova democracia ou democracia não consolidada) e a alteração no contrato social em um ambiente de instituições frágeis são capazes de influir sobre o tamanho do governo e o comportamento do gasto no curto e longo prazo. Além disso, a tese busca explorar quais seriam os problemas fiscais, as potenciais fragilidades, os canais e mecanismos de transmissão que relacionam uma democracia não consolidada e os problemas fiscais, tomando como estudo de caso a experiência brasileira. / The main objective of this thesis is to explore the interaction between the democratization process and change of social contract on government size and public spending in Brazil. The hypothesis of the thesis is the persistence of a fiscal policy pattern, present in both central government and subnational governments, composed of the following characteristics: i) increased pressure for increasing government size; ii) growth of current expenditure in relation to investment; and iii) procyclical and voracity effect. This fiscal policy pattern has its origin in the democratization process in the 1980s, with demands of society for public goods (education, health, social security, for example) and redistribution policies, stemming from the deepening of democracy and the presence of universal suffrage. Alongside, the emerging equilibrium suggests the need to accommodate interest groups (business elites and civil servant, for example) that equip the state and seek to defend and expand their privileges, especially in relation to tax benefits, access to budgetary resources and defense of priority in spending. So, the viability of this balance depends on the growth of government size that serves to minimize conflicts between interest groups, also preserving social and politics stability. However, the equilibrium contributes to strengthening the fiscal illusion about the short and long-term limitation of the budget and fiscal policy. The contribution of the thesis is to deepen the discussion about how the functioning of an illiberal democracy (or new democracy) and the change in the social contract in an environment of weak institutions can influence government size and the behavior of spending in the short and long term. In addition, the thesis seeks to explore what the fiscal problems, potential weaknesses and channels of transmission that relate to illiberal democracy and fiscal problems are, taking Brazil as a case study.

This three-essay dissertation focuses on the political economy of fiscal rules in a comparative context and highlights their unintended consequences – an issue that has received relatively little attention in public financial management literature. The first essay examines whether numerical limits on deficits, or balanced budget rules, influence the composition of public spending, particularly in the social sector. Using a combination of fixed effects and GMM regressions on a large panel of developed and developing economies, this essay finds that while deficit targets are effective in improving fiscal balances, they also tend to reduce social spending on health and social protection. This effect is particularly prominent in democratic countries, which often witness overspending problems. Countries that are considering adoption of such rules should carefully examine the effects of these requirements on expenditures that may have long-term positive externalities. Policymakers should explore mechanisms to minimize the distortionary effects of fiscal limits on spending composition. The second essay focusses on whether the adoption of deficit targets by subnational governments in India influenced the composition of public spending. Using a combination of fixed effects and GMM regressions, this essay finds that the adoption of Fiscal Responsibility and Budget Management (FRBM) legislation by Indian states improved their budget balances significantly. However, the post-FRBM period also witnessed significant cuts in development spending. Furthermore, states have reduced their capital outlay and social spending after the adoption of fiscal responsibility laws. Reduced expenditure on development, and capital projects may affect long-term economic growth, therefore future amendments to the FRBM law should explore mechanisms to minimize the distortionary impacts of fiscal targets on the composition of subnational spending. The third essay shifts attention to the effect of supermajority voting requirements on credit ratings and borrowing costs in the subnational debt market in the United States. Using a combination of generalized ordered logit and linear regression analyses on a sample of general obligation bonds issued by American state governments between 2001 and 2014, this essay finds that states with supermajority voting requirements for tax increases are more likely to receive a lower credit rating on their bonds. Furthermore, on average, the states with a supermajority voting requirement pay a premium of 18 to 21 basis points in true interest cost for their bonds. States that are considering adopting supermajority requirements should consider the unintended effects in terms of lower credit ratings and higher borrowing costs while adopting or designing such fiscal rules. The findings of this dissertation inform the policy debate on the subject and improve our understanding of the impact of fiscal institutions that are being increasingly adopted to regulate the behavior of governments across the world.

Über das Next Generation EU Programm ist eine gemeinsame Schuldenaufnahme unter dem Dach der EU-KOMMISSION erstmals in großem Umfang ermöglicht worden. Auch wenn stets betont worden ist, dass NGEU eine Maßnahme einmaliger Natur ist, so beschreiben einige EU-Amtsträger:innen, wie etwa der EU-Kommissar für Wirtschaft, PAOLO GENTILONI, sowie EMMANUEL MACRON und MARIO DRAGHI, welche fiskalischen Möglichkeiten die Verstetigung eines solchen Programms bieten könnte. Der Beitrag untersucht daher, welche Bedingungen mit der gemeinsamen Schuldenaufnahme verbunden sind und ob diese Konditionalität für eine künftige Schuldenaufnahme aus fiskalpolitischer Sicht adäquat ist. Daraus sollen Bedingungen abgeleitet werden, die bei einer künftigen gemeinsamen Schuldenaufnahme zu beachten sind. / Through the Next Generation EU Program, joint borrowing under the umbrella of the EU Commission has been made possible on a large scale for the first time. Although it has always been stressed that NGEU is a one-off measure, some EU officials, such as EU Commissioner for Economic Affairs PAOLO GENTILONI, as well as EMMANUEL MACRON and MARIO DRAGHI, describe the fiscal opportunities that the continuation of such a program could offer. The paper therefore examines the conditions associated with joint debt borrowing and whether this conditionality is adequate for future debt borrowing from a fiscal policy perspective. From this, the paper aims to derive conditions that need to be observed for future joint debt borrowing.