The paper presents a simple model for discussing the effects of deficit limits and budget rules on fiscal policy. It is found that limits on deficit-output ratios provide incentives to implement procyclical policies when the economy is in intermediate states, and countercyclical policies only in very "good" and very "bad" economic times. As a result, fiscal "reaction functions" are not monotonically related to the state of the economy. Deficit limits are found to exert discipline only provided the limit is tight and the expected sanction large, albeit at a relatively large welfare cost.
Did you find this white paper useful?
23 out of 50 users found this white paper useful
Related white papers
Transforming Corporate Action Processing
This paper presents The Depository Trust & Clearing Corporation's (DTCC) analysis of the challenges associated with corporate action processing, and DTCC's strategy to help market participants manage risk, reduce costs,...
Investment in Education: The Implications for Economic Growth and Public Finances
This paper analyses the demographic and institutional influences underlying public spending on education, as well as the consequences for average educational attainment and economic growth. The issues are topical given,...
The Sustainable Development of U.S. Air Transportation: The Promise and Challenge of Institutional Reform
This paper applies the concept of sustainable development to air transportation. It begins by explaining the concept of sustainable development as applied to transportation and identifies four dimensions of the...
Case for Action for an Information Management Strategy for the Government of Canada
The Government of Canada's (GoC) ability to meet its public policy and management goals is at risk due to current Information Management (IM) practices. This paper explores the issues surrounding...
Estimating Geographic Cost of Education Differences: A Case Study of Maryland
This paper focuses on the first of the factors causing costs to vary across districts - geographic differences in resource prices. Measuring geographic cost differences is important not only for...
Following the Money: An Analysis of State-Funded New Economy Policies and Initiatives
This paper examines state policies and programs targeted at developing and supporting the new economy, in addition to analyzing the levels of state financial support for new economy programs and...
Hazardous Materials Program
The Hazardous Materials Program covers several areas. First, it provides oversight and funding to ensure that state, tribal and local governments and industries have comprehensive emergency plans to protect the...
