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2021 | OriginalPaper | Chapter

Budget Institutions for Subnational Fiscal Discipline: Local Fiscal Rules in Post-Crisis EU Countries

Authors : Gerard Turley, Christian Raffer, Stephen McNena

Published in: Local Public Finance

Publisher: Springer International Publishing

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Abstract

Fiscal rules are institutional constraints on budget policymakers’ decision-making discretion aimed at fostering prudent fiscal policy, promoting overall fiscal discipline, and ensuring long-term fiscal sustainability. Since the European sovereign debt crisis, fiscal rules have been at the centre of the debate on the EU’s economic governance, the need to strengthen fiscal frameworks and improve policy co-ordination. This chapter outlines the origin, purpose, design, and coverage of local fiscal rules in EU countries over a decade after the 2008 financial crash. It presents a review of the empirical evidence on subnational fiscal rules and their impact and effectiveness on fiscal outcomes. The chapter ends with some concluding remarks and lessons drawn from the experience of fiscal rules across both time and space and outlines how policymakers can learn from this international experience.

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Appendix
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Footnotes
1
Fiscal rules are a special case of policy rules, which, in turn, are part of the much wider rules versus discretion strand of literature in macroeconomics and, particularly, fiscal and monetary policy. For a discussion on local fiscal rules, the more relevant literature relates to local public finance, fiscal decentralisation, subnational borrowing and, in the case of this book, fiscal regulation.
 
2
Another relevant policy rule is the no-bailout clause where an upper tier of government is precluded by law from bailing out a lower tier of government that is in financial trouble or distress. Although not unimportant, we omit this rule from our analysis.
 
3
Although our focus is on local fiscal rules, these design features apply to all fiscal rules, i.e. regional, national or supranational rules. A breakdown of numerical fiscal rules by type of government is provided by the EC database on fiscal rules. In the context of design attributes, Kopits and Symansky (1998) have identified the following criteria of internationally accepted good practice – definition, transparency, adequacy, consistency, simplicity, flexibility, enforceability and efficiency. This is an alternative to the list outlined in Table 2.
 
4
Although there is no established definition of second-generation fiscal rules, they appeared after the global financial crisis and are in general more enforceable, flexible and operational than their predecessors (Eyraud et al. 2018).
 
5
Due to a word count limit (an editorial rule!), we are prevented from providing more details on country-specific examples of fiscal rules. Country examples of changes to local fiscal rules post crisis can be found in sources cited in this chapter, most especially in OECD/KIPF (2016) and Geissler et al. (2019).
 
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Metadata
Title
Budget Institutions for Subnational Fiscal Discipline: Local Fiscal Rules in Post-Crisis EU Countries
Authors
Gerard Turley
Christian Raffer
Stephen McNena
Copyright Year
2021
DOI
https://doi.org/10.1007/978-3-030-67466-3_2