Working Paper: NBER ID: w5614
Authors: Alberto Alesina; Tamim Bayoumi
Abstract: This paper shows that in American states balanced budget rules are effective in enforcing fiscal discipline but they have no costs in terms of increased output variability. More specifically, we show that tighter fiscal rules are associated with larger average surplus and lower cyclical variability of the budget balance. However, the lower flexibility of the budget balance does not affect state output variability.
Keywords: fiscal rules; balanced budget; U.S. states; fiscal discipline
JEL Codes: H62; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tighter fiscal rules (E62) | larger average surpluses (H62) |
| tighter fiscal rules (E62) | lower cyclical variability of the budget balance (E62) |
| tighter fiscal rules (E62) | output variability (C67) |