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International Tax and Public Finance

, Volume 20, Issue 5, pp 785–807 | Cite as

Fiscal rules, budget deficits and budget projections

  • Simon Luechinger
  • Christoph A. SchalteggerEmail author
Article

Abstract

Fiscal rules are mentioned as instruments to commit political actors on long-term fiscal sustainability. However, fiscal rules may have stronger effects on projected than on realized fiscal outcomes because of window-dressing measures or because they alter the bargaining situation in the budget process. In our analysis for Swiss cantons, fiscal rules significantly lower the probability of projected and realized deficits with the former effect being twice as large. Projections are generally over-pessimistic but fiscal rules increase the probability of accurate projections. Thus, fiscal rules seem to substitute for finance ministers’ over-pessimistic projections intended to reign in fellow ministers and legislatures (100 words).

Keywords

Deficit projections Deficits Fiscal rules Budget process 

JEL Classification

D72 H72 H79 

Notes

Acknowledgements

We thank Christian Meyer, finance administration of the canton of Zurich, for courteously giving access to the data on deficits and deficit projections, Friedrich Heinemann for providing us with the fiscal rules index, Andreas Betschart, Pavla Polackova, and Tanja Rey for excellent research assistance, Roland Hodler for stimulating discussions, and Nils Soguel and participants of the 2012 meeting of the Swiss Society of Economics and Statistics for comments on earlier versions of the paper.

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Copyright information

© Springer Science+Business Media, LLC 2012

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of LucerneLucerneSwitzerland
  2. 2.KOF Swiss Economic InstituteETH ZurichZurichSwitzerland
  3. 3.University of St. GallenSt. GallenSwitzerland

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