Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting

Do fiscal rules likely lead to fiscal adjustment, or do they encourage the use of ‘creative accounting’? This question is studied with a model in which fiscal rules are imposed on ‘measured’ fiscal variables, which can differ from ‘true’ variables because there is a margin for creative accounting. The probability of detecting creative accounting depends on its size and the transparency of the budget. The model studies the effects on fiscal policy of different rules, separating structural from cyclical effects, and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget.

[1]  Laurence J. Kotlikoff,et al.  Dynamic Fiscal Policy , 1988 .

[2]  J. Hagen.  A note on the empirical effectiveness of formal fiscal restraints , 1991 .

[3]  James M. Poterba,et al.  State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics , 1994, Journal of Political Economy.

[4]  Beverly S. Bunch.  The effect of constitutional debt limits on state governments' use of public authorities , 1991 .

[5]  Alex Cukierman,et al.  The Politics of Ambiguity , 1987 .

[6]  Kenneth S. Rogoff,et al.  Elections and Macroeconomic Policy Cycles , 1986 .

[7]  O. Swank,et al.  Voting on the budget deficit: Comment , 1999 .

[8]  Kenneth S. Rogoff,et al.  Equilibrium Political Budget Cycles , 1987 .

[9]  P. Lane,et al.  Are windfalls a curse?: A non-representative agent model of the current account , 1998 .

[10]  Mario I. Bléjer,et al.  The Measurement of Fiscal Deficits: Analytical and Methodological Issues , 1991 .

[11]  William R. Easterly.  When is Fiscal Adjustment an Illusion? , 1999 .

[12]  D. Kiewiet,et al.  Constitutional Limitations on Borrowing: An Analysis of State Bonded Indebtedness , 1996 .

[13]  George Kopits,et al.  Transparency in government operations , 1998 .

[14]  A. Bovenberg,et al.  Does Monetary Unification Lead to Excessive Debt Accumulation , 1999 .

[15]  R. Inman,et al.  Balanced Budget Rules and Public Deficits: Evidence from the U.S. States , 1996 .

[16]  Ricardo Hausmann,et al.  Budget Institutions and Fiscal Performance in Latin America , 1996 .

[17]  Jürgen von Hagen,et al.  Budget Processes and Commitment to Fiscal Discipline , 1995, Credit and Capital Markets – Kredit und Kapital: Volume 52, Issue 4.

[18]  George Kopits,et al.  Fiscal Policy Rules , 1998 .

[19]  P. Lane,et al.  Are Windfalls a Curse? A Non-Representative Agent Model of the Current Account and Fiscal Policy , 1994 .

[20]  Stephanie Schmitt-Grohé,et al.  Balanced‐Budget Rules, Distortionary Taxes, and Aggregate Instability , 1997, Journal of Political Economy.

[21]  N. Roubini,et al.  Politically Motivated Fiscal Deficits: Policy Issues in Closed and Open Economies , 1995 .

[22]  Alberto Alesina,et al.  A Positive Theory of Fiscal Deficits and Government Debt , 1990 .

[23]  H. Uhlig,et al.  An Analysis of the Stability and Growth Pact , 1999 .

[24]  The Political Economy of Budget Deficits , 1994 .

[25]  H. Uhlig,et al.  An Analysis of the Stability Pact , 1997 .

[26]  W. Buiter,et al.  Excessive deficits: sense and nonsense in the Treaty of Maastricht. , 1993 .

[27]  Barry Eichengreen,et al.  Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization , 1995 .

[28]  H. Bohn.  Budget Deficits and Government Accounting , 1992 .