The hidden compliance zone of fiscal rules

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Resumen

This paper studies fiscal rule compliance under uncertainty and irreversibility. I show that a broad class of fiscal rule designs contain a state space in which the government optimally complies with the rule in place, a compliance zone. Outside the compliance zone, the government exerts control on the path committed by the rule. I also show that the size of the rule’s compliance zone depends on two elements: first, how the rule copes with the uncertainty regarding the macro variable that underlies it; and second, how the fiscal spending path committed by the rule accommodates the demand for public goods.

Idioma originalInglés
Páginas (desde-hasta)1661-1670
Número de páginas10
PublicaciónApplied Economics Letters
Volumen30
N.º12
DOI
EstadoPublicada - 2023
Publicado de forma externa

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