Working Paper: CEPR ID: DP2663
Authors: Gian Maria Milesi-Ferretti
Abstract: 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.
Keywords: budget deficits; budget transparency; creative accounting; fiscal rules
JEL Codes: E62; H61; H62
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Fiscal Rules (E62) | Responsible Fiscal Behavior (H39) |
| Responsible Fiscal Behavior (H39) | Reduced Deficits (H62) |
| Fiscal Rules (E62) | Fiscal Discipline (E62) |
| Low Transparency (D82) | Increased Creative Accounting (M41) |
| High Transparency (G38) | Enhanced Effectiveness of Fiscal Rules (E61) |
| Fiscal Rules (E62) | Creative Accounting Practices (M41) |
| Past Behavior (D91) | Current Regulatory Strictness (G18) |
| Fiscal Rules (E62) | Stabilization of Fiscal Policy (E63) |
| Fiscal Rules (E62) | Hinder Counter-Cyclical Fiscal Measures (E62) |
| Creative Accounting (M41) | Illusion of Fiscal Adjustment (E62) |