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FISCAL RULES AND GOVERNMENT BORROWING COSTS: INTERNATIONAL EVIDENCE
Author(s) -
Thornton John,
Vasilakis Chrysovalantis
Publication year - 2018
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12484
Subject(s) - credibility , economics , government (linguistics) , probability of default , fiscal policy , propensity score matching , sample (material) , debt , monetary economics , government debt , variety (cybernetics) , macroeconomics , finance , credit risk , philosophy , linguistics , statistics , chemistry , mathematics , chromatography , artificial intelligence , political science , computer science , law
We find that the adoption of numerical fiscal rules reduces government borrowing costs in a sample of 101 advanced and developing countries for 1985–2010. We apply a variety of propensity score matching methods to address the self‐selection problem of policy adoption and find strong evidence that fiscal rules have large and significant treatment effects on lowering government borrowing costs in both international and domestic financial markets. The results are robust to changes in country sample and alternative estimation methodology, and are consistent with fiscal rules helping to build policy credibility by reducing the probability of default and the “risk premium” on government debt that compensates lenders for this possibility. ( JEL E43, G12, H60)