We study the desirability of limits on the public debt and of political turnover in an economy where incumbents have an incentive to set public expenditures above the socially optimal level due to rent-seeking motives. Parties alternate in office and cannot commit to future policies, but they...

Rather than stabilising aggregate demand, discretionary fiscal policy tends to amplify cyclical fluctuations of output. The commonly accepted reasons are political economy and uncertainty. In the EU, the pro-cyclical nature of discretionary fiscal policy has also been associated with the...

This paper studies the impact of national fiscal rules on government size as measured by the ratio of government expenditures to gross domestic product. We develop a model of the budgetary process and show that a common pool problem may arise which can be mitigated through fiscal rules. We test...

We assess the drivers of fiscal sustainability in 20 OECD economies between 1950 and 2019. We find stable long-term relationships between government revenues and expenditures as well as between the primary budget balance and past public debt ratio for the full panel. Performing an expanding...

Fiscal policy has become quite controversial in the post-Keynesian era, the debate over the Obama stimulus package being a contentious recent example. Some pundits go so far as to take the position that macroeconomic theory has failed to meaningfully progress in terms of providing useful...

We consider an economy where competing political parties alternate in office. Due to rent-seeking motives, incumbents have an incentive to set public expenditures above the socially optimum level. Parties cannot commit to future policies, but they can forge a political compromise where each...

In this paper, we study whether local spending of intergovernmental grants is influenced by mayoral elections in the grant receiving municipality. We exploit the implementation of the German federal government’s second economic stimulus package of 2009 (K2) in the state of Baden-Wuerttemberg...

The budget dispute between Italy and the European Commission in 2018 gave new impetus for the debate about the reliability of output gap estimation methods and their use for calculating structural budget balances. In this paper we review the main properties of the mainstream approaches and...

This paper explores the nuanced relationship between fiscal decentralization and fiscal sustainability. Employing panel data analyses, it scrutinizes how decentralization influences fiscal discipline across different governmental levels. Results for 185 countries show that while tax...

The zero lower bound era introduced a new perspective on the functionality of fiscal rules. With such low interest rates, the argument goes, extending debt financed public investment spending would be reasonable and thus existing fiscal rules too restrictive. Using data of Swiss cantonal public...