PhD defense: Cezara Vinturis

The Macroeconomic Effects of Fiscal Rules

Jury

Jean-Louis Combes, Professeur, CERDI-UCA
Nicoleta Sirghi, Professeur, Université de l’Ouest de Timisoara
Jean-Bernard Chatelain, Professeur, Université Paris I Panthéon-Sorbonne
Valérie Mignon, Professeur, Université Paris X Nanterre
Patrick Villieu, Professeur, Université d’Orléans
Cosmin Enache, Professeur, Université de l’Ouest de Timisoara
Friedrich Heinemann, Professeur, Leibniz-ZEW Mannheim
Luisa Lambertini, Professeur, Ecole Polytechnique de Lausanne

Abstract

The macroeconomic stance during the late 1970s is characterized by severe high-inflation episodes. One of the most important messages delivered by the post-1970s oil shocks literature was that rules might be preferred to discretionary policies. The key argument of this ”new momentum” is grounded in the idea that discretion involves absence while rules involve commitment and credibility. Capitalizing on such arguments, a growing number of countries adopted fiscal rules with the aim of attaining sound and credible fiscal positions. Compared to only a handful of countries in the mid-1980s, around 100 countries currently present at least a type of fiscal rule according to the IMF Fiscal Rules Dataset.

This PhD, entitled ”The macroeconomic effects of fiscal rules”, is composed of two parts, each containing two chapters, for a total of four chapters. Each chapter is organized as a manuscript and presents an original contribution on the effects of fiscal rules.

The first chapter explores the effect of fiscal rules on fiscal performance in EU Former Communist Countries. Results are as follows. Simply adopting fiscal rules may trigger possible threats of a multi-speed fiscal Europe, as they significantly improve fiscal performance in Western EU but not in Central and Eastern EU countries. Instead, enforcing fiscal rules may improve the fiscal cohesion of the EU, as they enhance the fiscal performance of both Western and Central and Eastern EU countries. From a broader perspective, fiscal policies should go beyond the simple adoption of fiscal rules and insist on their enforcement in the countries that are expected to join the Euro area or the EU in the years to come.

The second chapter explores the joint effect of fiscal rules and institutions on fiscal discipline by distinguishing between two groups of EU countries, i.e. previously-communist countries (CC) and non-communist countries (NCC). Our analysis reveals the following. Strengthening fiscal rules increases the fiscal discipline of non-communist countries as institutions improve (a complementarity effect), but decreases the fiscal discipline of previously communist countries as institutions improve (a substitution effect). From a policy perspective, our findings suggest that a one-size-fits-all approach to fiscal rules’ design may result, due to differences in the institutional environment, into fairly-different impacts on fiscal performance between non-communist and former communist EU countries.

The third chapter examines the way fiscal rules may influence government’s behavior, particularly by exploring the nexus between fiscal rules and the composition of public spending. Estimations reveal the following. Fiscal rules are found to significantly reduce total public spending and public consumption, leave public investment mostly unaffected, and increase the public investment-to-public consumption ratio. Moreover, our findings differ with respect to the type of fiscal rule and countries’ level of economic development. Finally, the features of fiscal rules seem to be the major driving force of the way public spending—and, particularly, total spending and public investment—are changed in response to fiscal rules’ adoption.

The last chapter extends the literature on the side-effects of fiscal rules by exploring the causal direct effect of fiscal rules adoption on income inequality in a large panel of developing countries. Our estimations show that fiscal rules have a significant side-effect on income inequality: countries that adopted fiscal rules experience a significant decrease in their income inequality with respect to comparable countries that did not. Moreover, when looking at possible differences in the effect of fiscal rules on inequality, we find that the type of fiscal rule matters: while balanced-budget rules and debt rules have a favorable effect on inequality, expenditure rules are found to increase it. Lastly, we unveil important heterogeneities in the relationship between fiscal rules and inequality driven by fiscal, monetary, international, and other structural factors.

Keywords

Fiscal rules, fiscal performance, European Union, fiscal aggregates, EU Former Communist Countries, fiscal rules’ strength, institutions, public spending, public consumption, public investment, fiscal rules’ features, income inequality, expenditure rules, balanced budget rules, debt rules.

theses.fr/en/s221581