Fiscal Discipline Exchange Rate Regimes

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Fiscal Discipline And Exchange Rates

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Author : João Tovar Jalles
language : en
Publisher: International Monetary Fund
Release Date : 2016-11-17

Fiscal Discipline And Exchange Rates written by João Tovar Jalles and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2016-11-17 with Business & Economics categories.

We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis.

Do Fixed Exchange Rates Induce More Fiscal Discipline

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Author : Mr.Yan Sun
language : en
Publisher: International Monetary Fund
Release Date : 2003-04-01

Do Fixed Exchange Rates Induce More Fiscal Discipline written by Mr.Yan Sun and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-04-01 with Business & Economics categories.

Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline.

Fiscal Discipline And Exchange Rate Regimes

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Author : Rupa Duttagupta
language : en
Publisher: International Monetary Fund
Release Date : 2006-05

Fiscal Discipline And Exchange Rate Regimes written by Rupa Duttagupta and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-05 with Business & Economics categories.

This paper assesses the nature of fiscal discipline under alternative exchange rate regimes. First, it shows in a simple theoretical framework that fiscal agencies under a currency union with a fixed exchange rate can have the largest incentive to overspend or "free-ride" (compared to those under other exchange rate regimes) owing to their ability to spread the costs of overspending in terms of the inflation tax across both time-given the fixed exchange rate-and space-given the currency union. In contrast, such free-riding behavior does not arise under flexible regimes owing to the immediate inflationary impact of spending. Next, empirically, it shows that fiscal stances in countries with fixed pegs and currency unions regime demonstrate greater free-riding behavior than countries with more flexible regimes in 15 Caribbean countries during 1983-2004.

Fiscal Discipline Exchange Rate Regimes

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Author : Enrique Alberola
language : en
Publisher:
Release Date : 2007

Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.

Empirical evidence shows that fixed exchange rates do not provide more fiscal discipline than flexible regimes, despite the fact that, in principle, fixing the exchange rate imposes important restrictions on seignoriage revenues. A more detailed analysis of seignoriage allows to explain the channels whereby monetary financing is possible in the short and medium run even in a exchange rate peg. More precisely, it is argued that the traditional concept of money seignoriage is misguiding and that fiscal seignoriage, defined as the actual revenues accruing to govern from the Central Bank, is a key variable to determine fiscal discipline. The paper shows that a peculiar version of fixed regimes, the currency boards, may effectively restrain fiscal policy by ruling out fiscal seignoriage. An indirect confirmation of these hypotesis is advanced by observing the empirical link between monetary seignoriage and fiscal seignoriage, and their relation with fiscal discipline.

Fiscal Discipline And Exchange Rate Regimes

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Author : Matthew B. Canzoneri
language : en
Publisher:
Release Date : 1998

Fiscal Discipline And Exchange Rate Regimes written by Matthew B. Canzoneri and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1998 with Fiscal policy categories.

Fiscal Discipline Exchange Rate Regimes

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Author : Enrique Alberola Ila
language : en
Publisher:
Release Date : 2000

Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola Ila and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000 with Currency boards categories.

Fiscal Discipline And The Choice Of Exchange Rate Regime

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Author : Aaron Tornell
language : en
Publisher:
Release Date : 1994

Fiscal Discipline And The Choice Of Exchange Rate Regime written by Aaron Tornell and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994 with Foreign exchange rates categories.

On Promoting Fiscal Discipline

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Author : Kady Keita
language : en
Publisher:
Release Date : 2019

On Promoting Fiscal Discipline written by Kady Keita and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2019 with categories.

This paper examines how fiscal rules, exchange rate regimes, and institutional quality affect the cyclical behavior of fiscal policy (how government spending responds to fluctuations in gross domestic product). The analysis is performed on a panel of 153 advanced, emerging, and developing countries over 1993-2015 using local Gaussian-weighted ordinary least squares and two-stage least squares estimators. The findings show that the adoption of fiscal rules alone is not sufficient to promote countercyclical fiscal policy and should be combined with strong institutions. Moreover, fiscal rules seem to limit procyclicality, especially in countries with flexible exchange rate regimes rather than in countries with fixed exchange rates. The analysis also finds that the disciplining effect of fiscal rules depends on the type of rule.

Exchange Rate Regimes And Fiscal Discipline

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Author : Guillermo Vuletin
language : en
Publisher:
Release Date : 2013

Exchange Rate Regimes And Fiscal Discipline written by Guillermo Vuletin and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with categories.

How do exchange rate regimes influence fiscal discipline? This important question has typically been addressed exploiting the classic dichotomy of fixed versus flexible exchange rate regimes assuming perfect capital mobility. However, the role of capital controls cannot be neglected, particularly in developing countries. This paper analyzes the effects of capital controls on fiscal performance by focusing on dual exchange rate regimes. In a model in which the fiscal policy is endogenously determined by a nonbenevolent fiscal authority, dual regimes induce politicians to have higher fiscal deficits than under fixed and flexible regimes operating under perfect capital mobility. The model also shows this effect increases as fiscal authorities become more impatient. Dynamic panel regressions confirm that dual regimes lead to higher fiscal deficits than fixed and flexible regimes operating under unified rates. Using a dummy for pre-electoral year as an indicator of fiscal authorities' shortsightedness, we also confirm that dual exchange rate has a more adverse effect on fiscal deficits as the authorities become more impatient.

Exchange Rate Regimes And Fiscal Discipline In Oecd Countries

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Author : Friedrich Heinemann
language : en
Publisher:
Release Date : 1999

Exchange Rate Regimes And Fiscal Discipline In Oecd Countries written by Friedrich Heinemann and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1999 with categories.

Since the start of EMU national fiscal policy in the Eurozone can be conducted almost without paying any attention to consequences for the exchange rate. This might lower fiscal discipline. In order to shed light on the empirical relevance of this consideration, the impact of the exchange rate regime and a number of other variables on primary deficits is analysed in a panel estimation for 20 OECD countries from 1970 onwards. The conclusion is that the exchange rate regime as such is not relevant for the fiscal balance - a result backing an optimistic view on fiscal discipline under EMU. On the other hand, however, there is the result that a high degree of openness has a deficit reducing impact. This is a worrying result in the EMU context since the single currency reduces openness. The study underlines the efficacy of the Maastricht criteria. The criteria and not economic necessity have dictated the consolidation in the EU during the 90s.