Foremny, Dirk (2011): Vertical aspects of sub-national deficits: the impact of fiscal rules and tax autonomy in European countries.
This is the latest version of this item.
Download (609kB) | Preview
This article offers an empirical answer to the question of which institutional arrangements can help to keep the accounts of sub-national governments in balance. I take into consideration the autonomy that these governments have in raising their revenues and fiscal rules as formulated in law or constitutions. The former works as an implicit constraint since governments with more autonomy might assume higher responsibility for accumulated deficits. The latter works as a direct explicit constraint on sub-national borrowing, but might be subject to endogeneity through preferences for fiscal responsibility. This potential source of bias is taken into account by using IV techniques for fiscal rules. Results from my original dataset, covering full information for 14 years of all EU15 countries, show that the effectiveness of tools depends critically on the federal background. Fiscal rules work in unitary countries, while higher tax autonomy yields lower deficits in federations.
|Item Type:||MPRA Paper|
|Original Title:||Vertical aspects of sub-national deficits: the impact of fiscal rules and tax autonomy in European countries|
|Keywords:||sub-national deficits; fiscal rules; soft budget constraints; fiscal federalism|
|Subjects:||H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H71 - State and Local Taxation, Subsidies, and Revenue
H - Public Economics > H7 - State and Local Government; Intergovernmental Relations > H74 - State and Local Borrowing
E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, Macroeconomic Policy, and General Outlook > E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
|Depositing User:||Dirk Foremny|
|Date Deposited:||29. Mar 2012 13:39|
|Last Modified:||14. Feb 2013 11:12|
Alesina, Alberto, Ricardo Hausmann, Rudolf Hommes, and Ernesto Stein. 1999. Budget institutions and ﬁscal performance in Latin America. Journal of Development Economics 59 (2):253 – 273.
Alesina, Alberto and Roberto Perotti. 1996. Fiscal Discipline and the Budget Process. American Economic Review 86 (2):401–407.
Baskaran, Thushyanthan. 2012. Soft budget constraints and strategic interactions in sub-national borrowing: Evidence from the German States. Journal of Urban Economics 71 (1):114–127.
Bayoumi, Tamim and Barry Eichengreen. 1995. Restraining Yourself: The Implications of Fiscal Rules for Economic Stabilization. Staﬀ Papers - International Monetary Fund 42 (1):32–48.
Beck, T., Clarke, G., Groﬀ, A., Keefer, P., Walsh, P. 2001. New tools in comparative political economy: The database of political institutions. The World Bank Economic Review, 15 (1), pp. 165–176.
Bevilaqua, Afonso S. 2002. State Government Bailouts in Brazil. Res working papers, Inter-American Development Bank.
Bohn, Henning and Robert P. Inman. 1996. Balanced Budget Rules and Public Deﬁcits: Evidence from the U.S. States. NBER Working Papers 5533, National Bureau of Economic Research.
Borgdignon, M. 2006. Fiscal decentralization: How to harden the budget constraint. In E. F.
Peter Wierts, Servaas Deroose, A. Turrini eds. Fiscal Policy Surveillance in Europe, New York, Palgrave Macmillan, Chap. 6, 109–136.
Breuillé, M.-L., Vigneault, M. 2010. Overlapping soft budget constraints. Journal of Urban Economics, 67 (3), 259–269.
Breuillé, M.-L., Madi`es, T., Taugourdeau, E. 2006. Does tax competition soften regional budget constraint? Economics Letters, 90 (2), 230 – 236.
Bruno, G. S. 2005. Approximating the bias of the lsdv estimator for dynamic unbalanced panel data models. Economics Letters, 87 (3), 361 – 366.
Dahlberg, M., von Hagen, J. 2004. Swedish local government: is there a bailout problem. In P. Molander ed. Fiscal Federalism in Unitary States, Kluwer, Chap. 3, 47–76.
Debrun, X., Moulin, L., Turrini, A., Ayuso-i Casals, J., Kumar, M. S. 2008. Tied to the mast? national ﬁscal rules in the european union. Economic Policy, 23, 297–362.
Duverger, M. 1954. Political Parties Their Organization and Activity in the Modern State. Routledge Kegan & Paul. European Commission 2006. National numerical ﬁscal rules and institutions for sound public ﬁnances. In Public Finances in EMU - 2006 In , European Economy (3), Brussels, European Commission.
European Commission 2008. Fiscal rules in the eu at national level: experiences and lessons. Presupuesto y Gasto P´ublico, 51 (2), 60–82.
European Commission 2009. Fiscal rules, independent institutions and medium-term budgetray frameworks. In Public Finances in EMU In , European Economy (5), Brussels, European Commission.
Goodspeed, T. J. 2002. Bailouts in a federation. International Tax and Public Finance, 9, 409–421.
Hallerberg, M., von Hagen, J. 1999. Electoral institutions, cabinet negotiations, and budget deﬁcits in the european union. In Fiscal Institutions and Fiscal Performance, National Bureau of Economic Research, Inc, 209–232.
Hallerberg, M., Strauch, R., von Hagen, J. 2009. Fiscal governance in Europe. New York, Cambridge University Press, 230.
Hallerberg, M., Strauch, R., von Hagen, J. 2007. The design of ﬁscal rules and forms of governance in european union countries. European Journal of Political Economy, 23 (2), 338–359.
Inman, R. P. 2001. Transfers and bailouts: Institutions for enforcing local ﬁscal discipline. Constitutional Political Economy, 12, 141–160.
Judson, R. A., Owen, A. L. 1999. Estimating dynamic panel data models: a guide for macroeconomists. Economics Letters, 65 (1), 9–15.
Kornai, J., Maskin, E., Roland, G. 2003. Understanding the soft budget constraint. Journal of Economic Literature, 41 (4), 1095–1136.
Krogstrup, S., Wyplosz, C. 2010. A common pool theory of supranational deﬁcit ceilings.
European Economic Review, 54 (2), 273 – 282. Köthenbürger, M. 2007. Ex-post redistribution in a federation: Implications for corrective policy. Journal of Public Economics, 91 (3-4), 481 – 496.
Newey, W. K., West, K. D. 1987. A simple, positive semi-deﬁnite, heteroskedasticity and autocorrelation consistent covariance matrix. Econometrica, 55 (3), pp. 703–708.
Nickell, S. J. 1981. Biases in dynamic models with ﬁxed eﬀects. Econometrica, 49 (6), 1417–26.
OECD 1999. Taxing powers of state and local government. In , Tax Policy Studies (1), Paris, OECD.
Pettersson-Lidbom, P. 2010. Dynamic commitment and the soft budget constraint: An empirical test. American Economic Journal: Economic Policy, 2 (3), 154–79.
Plekhanov, A., Singh, R. 2006. How should subnational government borrowing be regulated? some cross-country empirical evidence. IMF Staﬀ Papers, 53 (3).
Poterba, J. M. 1996. Budget institutions and ﬁscal policy in the u.s. states. The American Economic Review, 86 (2), pp. 395–400.
Rodden, J. A. 2002. The dilemma of ﬁscal federalism: Grants and ﬁscal performance around the world. American Journal of Political Science, 46 (3), 670–687.
Rodden, J. A. 2006. Hamilton’s Paradox: The Promise and Peril of Fiscal Federalism. Cambridge Studies in Comparative Politics, Cambridge University Press.
Rodden, J. A., Eskeland, G. S., Litvack, J. 2003. Fiscal Decentralization and the Challenge of Hard Budget Constraints. The MIT Press.
Stegarescu, D. 2005. Public sector decentralization: Measurement concepts and recent international trends. Fiscal Studies, 26 (3), 301–333.
Sutherland, D., Price, R., Joumard, I. 2005. Fiscal rules for sub-central governments: Design and impact. OECD Economics Department Working Papers 465, OECD, Economics Department.
Taagepera, R., Shugart, M. S. 1993. Predicting the number of parties: A quantitative model of duverger’s mechanical eﬀect. The American Political Science Review, 87 (2), pp. 455–464.
Velasco, A. 2000. Debts and deﬁcits with fragmented ﬁscal policymaking. Journal of Public Economics, 76 (1), 105 – 125.
Vigneault, M. 2006. Grants and soft budget constraints. In R. Boadway, A. Shah eds. Intergovernmental Fiscal Transfers: Principles and Practice, World Bank Publications, Chap. 5, 133–171.
von Hagen, J., Eichengreen, B. 1996. Federalism, ﬁscal restraints, and european monetary union. American Economic Review, 86 (2), 134–38.
von Hagen, J., Harden, I. J. 1995. Budget processes and commitment to ﬁscal discipline. European Economic Review, 39 (3-4), 771 – 779. Papers and Proceedings of the Ninth Annual Congress European Economic Association.
von Hagen, J., Bordignon, M., Grewal, B. S., Petterson, P., Seitz, H., Dahlberg, M. 2000. Subnational Government Bailouts in OECD Countries: Four Case Studies.
Wildasin, D. E. 1997. Externalities and bailouts: Hard and soft budget constraints in intergovernmental ﬁscal relations. Policy Research Working Paper Series 1843, The World Bank.
Available Versions of this Item
Vertical aspects of sub-national deficits: the impact of fiscal rules and tax autonomy in European countries. (deposited 26. Aug 2011 17:07)
- Vertical aspects of sub-national deficits: the impact of fiscal rules and tax autonomy in European countries. (deposited 29. Mar 2012 13:39) [Currently Displayed]