Download or read book Do Fixed Exchange Rates Induce More Fiscal Discipline written by Yan Sun and published by International Monetary Fund. This book was released on 2003-04 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Fiscal Discipline and Exchange Rates written by João Tovar Jalles and published by International Monetary Fund. This book was released on 2016-11-17 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Fiscal Discipline and Exchange Rate Regimes written by Rupa Duttagupta and published by International Monetary Fund. This book was released on 2006-05 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Fiscal Discipline and Exchange Rate Regimes written by Matthew B. Canzoneri and published by . This book was released on 1998 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Fiscal Discipline Exchange Rate Regimes written by Enrique Alberola Ila and published by . This book was released on 2000 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Fiscal Discipline and the Choice of Exchange Rate Regime written by Aaron Tornell and published by . This book was released on 1994 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book IMF Working Papers written by Guillermo Tolosa and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book On Promoting Fiscal Discipline written by Kady Keita and published by . This book was released on 2019 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book Fixed Versus Flexible Exchange Rates written by Aaron Tornell and published by . This book was released on 1995 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: In recent years the conventional wisdom has held that fixed rates provide more fiscal discipline than do flexible rates. In this paper we show that this wisdom need not hold in a standard model in which fiscal policy is endogenously determined by a maximizing fiscal authority. The claim that fixed rates induce more discipline stresses that sustained adoption of lax fiscal policies must eventually lead to an exhaustion of reserves and thus to a politically costly collapse of the peg. Hence, under fixed rates bad behavior today leads to punishment tomorrow. Under flexible rates bad behavior has costs as well. The difference is in the intertemporal distribution of these costs: flexible rates allow the effects of unsound fiscal policies to manifest themselves immediately through movements in the exchange rate. Hence, bad behavior today leads to punishment today. If fiscal authorities are impatient, flexible rates - by forcing the costs to be paid up-front - provide more fiscal discipline and higher welfare for the representative private agent. The recent experience of Sub- Saharan countries supplies some preliminary evidence that matches the predictions of the model.
Download or read book Three Essays on Tight Exchange Rate Regimes and Fiscal Discipline in Transition Economies written by Dalia Grigonytė and published by . This book was released on 2006 with total page 129 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Exchange Rate Regimes and Fiscal Discipline in OECD Countries written by Friedrich Heinemann and published by . This book was released on 1999 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book On Fiscal Discipline and the Choice of Exchange Rate Regime written by Yan Sun and published by . This book was released on 2000 with total page 262 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Exchange Rate Regimes and Fiscal Discipline written by Guillermo Vuletin and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.
Download or read book What Does Really Discipline Fiscal Policy in Emerging Markets The Role and Dynamics of Exchange Rate Regimes written by Enrique Alberola and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixing the exchange rate stabilises inflation and reduces monetary seignoriage, a key source of financing under the fiscal dominance hypothesis. However, the link between fixed exchange rate regimes and fiscal discipline in emerging markets has been found to be weak. This paper thoroughly reviews the issue through three venues. First, an alternative measure to gauge fiscal discipline -the so called shadow balance, inclusive of seignoriage revenues- is proposed, since the traditional one, the primary balance, does not convey monetary financing; notwithstanding this modification, no robust relation is found either. Second, we sustain and then prove the hypothesis that fixing the exchange rate may have offsetting effects on fiscal discipline through the relaxation of the fiscal constraint of the government. In particular fixing the exchange rate is expected to reduce the cost and burden of debt and to enhance the ability to obtain revenues through a higher level of activity. The empirical test of this hypothesis follows a two stage approach. First, we test the impact of the fiscal constraints on discipline: as advocated, a higher fiscal burden induces higher discipline; higher activity does not clearly relax discipline, although expenditures grow and the burden of debt is shown to diminish. The second stage tests the impact of fixed regime on the considered determinants. Again, the relation between fixed regimes and the reduction of the burden is robust, but not so the impact of fixed regimes on the cycle. Third, we explore the dynamics related to the pegging of the exchange rate, uncovering that at its inception exchange rates trigger an expansion and reduce the debt burden. This final outcome does not only strengthen our hypothesis but illustrates how the peg sows the seeds of its own destruction, also at the fiscal level.
Download or read book Exchange Rate Policy in Developing Countries Some Analytical Issues written by Bijan B. Aghevli and published by World Bank Publications. This book was released on 1991-05-15 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.
Download or read book The Relevance of Fiscal Conditions for the Success of European Monetary Integration written by International Monetary Fund and published by International Monetary Fund. This book was released on 1989-01-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper argues that international differences in fiscal conditions influence the relative attractiveness of locating production facilities in different countries and could prove to be a troublesome source of instability for the European economies. Even though physical capital movements tend to occur slowly, divergent fiscal conditions can exert pressures on exchange rates in the short run, and the monetary policy reactions induced in a fixed exchange rate regime may affect real wage rates and/or employment levels. The implications for tax harmonization and budget discipline are discussed. It is argued that monetary integration itself will not induce fiscal discipline.
