TY  - JOUR
AU  - Wyplosz, Charles
TI  - Fiscal Rules: Theoretical Issues and Historical Experiences
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17884
PY  - 2012
Y2  - March 2012
DO  - 10.3386/w17884
UR  - http://www.nber.org/papers/w17884
L1  - http://www.nber.org/papers/w17884.pdf
N1  - Author contact info:
Charles Wyplosz
Graduate Institute of International Studies
Avenue de la Paix 11a
1202 Geneva
Switzerland
Tel: 41 22 908 5946
Fax: 41 22 733 3049
E-Mail: charles.wyplosz@graduateinstitute.ch
M1  - published as Charles Wyplosz. "Fiscal Rules: Theoretical Issues and Historical Experiences," in Alberto Alesina and Francesco Giavazzi, editors, "Fiscal Policy after the Financial Crisis" University of Chicago Press (2013)

M3  - presented at "Fiscal Policy after the Financial Crisis", December 12-13, 2011
AB  - Fiscal indiscipline is a feature of many developed countries. It is generally accepted that the source of the phenomenon lies in the common pool problem, the fact that recipients of public spending to fail to fully internalize the costs that taxpayers must assume. As a result, democratically elected governments are led to postpone tax collection, or to cut spending. Solving the fiscal discipline problem requires internalizing this externality. This calls for adequate institutions or for rules, or both. This paper reviews the various types of solutions that have been discussed in the literature and surveys a number of experiments. With the European debt crisis in mind, the paper pays particular attention to the common pool problem that emerges in federal states. The main conclusions are the following. First, rules are unlikely to exist unless they come with supporting institutions. Second, fiscal institutions are neither necessary nor sufficient to achieve fiscal discipline, but they help. Third, because institutions must bind the policymakers without violating the democratic requirement that elected officials have the power to decide on budgets, effective arrangements are those that give institutions the authority to apply legal rules or to act as official watchdogs.
ER  -