The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces
The growth of debt and deficits in developed countries has led many states to consider the adoption of fiscal rules. There is little evidence on the benefits of different types of rules. This study uses Monte Carlo techniques to examine the impact on welfare and government spending stabilization of...
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fttriple:oai:gotriple.eu:10670/1.4vfc5k 2023-05-15T17:22:35+02:00 The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces Landon, Stuart Smith, Constance E. 2015-09-11 https://doi.org/10.7939/R3JH3DJ84 https://era.library.ualberta.ca/items/e3fe351e-5348-4542-bd21-e767f66cc785 en eng doi:10.7939/R3JH3DJ84 10670/1.4vfc5k https://era.library.ualberta.ca/items/e3fe351e-5348-4542-bd21-e767f66cc785 other ERA : Education and Research Archive eco manag Other https://vocabularies.coar-repositories.org/resource_types/c_1843/ 2015 fttriple https://doi.org/10.7939/R3JH3DJ84 2023-01-22T16:45:35Z The growth of debt and deficits in developed countries has led many states to consider the adoption of fiscal rules. There is little evidence on the benefits of different types of rules. This study uses Monte Carlo techniques to examine the impact on welfare and government spending stabilization of five types of government expenditure rules. The simulation employs a three-variable VAR estimated using data for the Canadian provinces. The use of a VAR captures the interactive effects between spending under the fiscal rule, output and revenue. The best fiscal rules reduce government expenditure volatility by about half relative to a balanced budget rule. The stabilization benefit is about twice as great for the three provinces with more resource-based and volatile revenue — Alberta, Saskatchewan and Newfoundland. Some fiscal rules lead to an unsustainable path for government debt or assets under many simulations due to an absence of feedback from the stock of debt or assets to current expenditure. We find that a simple rule, where government expenditure is based on the moving average of past government revenue, is one of the better performing rules and yields a level of expenditure stabilization and a welfare gain similar to the more complicated “debt brake” rule adopted by Switzerland and other countries. The Swiss rule requires forecasts for revenue and output, and its greater complexity may make it more difficult to implement, monitor, and communicate to the public. Other/Unknown Material Newfoundland Unknown |
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eco manag Landon, Stuart Smith, Constance E. The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
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eco manag |
description |
The growth of debt and deficits in developed countries has led many states to consider the adoption of fiscal rules. There is little evidence on the benefits of different types of rules. This study uses Monte Carlo techniques to examine the impact on welfare and government spending stabilization of five types of government expenditure rules. The simulation employs a three-variable VAR estimated using data for the Canadian provinces. The use of a VAR captures the interactive effects between spending under the fiscal rule, output and revenue. The best fiscal rules reduce government expenditure volatility by about half relative to a balanced budget rule. The stabilization benefit is about twice as great for the three provinces with more resource-based and volatile revenue — Alberta, Saskatchewan and Newfoundland. Some fiscal rules lead to an unsustainable path for government debt or assets under many simulations due to an absence of feedback from the stock of debt or assets to current expenditure. We find that a simple rule, where government expenditure is based on the moving average of past government revenue, is one of the better performing rules and yields a level of expenditure stabilization and a welfare gain similar to the more complicated “debt brake” rule adopted by Switzerland and other countries. The Swiss rule requires forecasts for revenue and output, and its greater complexity may make it more difficult to implement, monitor, and communicate to the public. |
format |
Other/Unknown Material |
author |
Landon, Stuart Smith, Constance E. |
author_facet |
Landon, Stuart Smith, Constance E. |
author_sort |
Landon, Stuart |
title |
The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
title_short |
The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
title_full |
The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
title_fullStr |
The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
title_full_unstemmed |
The welfare and stabilization befits of fiscal rules: Evidence from Canadian provinces |
title_sort |
welfare and stabilization befits of fiscal rules: evidence from canadian provinces |
publishDate |
2015 |
url |
https://doi.org/10.7939/R3JH3DJ84 https://era.library.ualberta.ca/items/e3fe351e-5348-4542-bd21-e767f66cc785 |
genre |
Newfoundland |
genre_facet |
Newfoundland |
op_source |
ERA : Education and Research Archive |
op_relation |
doi:10.7939/R3JH3DJ84 10670/1.4vfc5k https://era.library.ualberta.ca/items/e3fe351e-5348-4542-bd21-e767f66cc785 |
op_rights |
other |
op_doi |
https://doi.org/10.7939/R3JH3DJ84 |
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1766109334806200320 |