TY  - JOUR
AU  - Canova,Fabio
AU  - Pappa,Evi
TI  - Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 11065
PY  - 2005
Y2  - January 2005
UR  - http://www.nber.org/papers/w11065
L1  - http://www.nber.org/papers/w11065.pdf
N1  - Author contact info:
Fabio Canova
Universitat Pompeu Fabra
Department of Economics
Empresa Ramon Trias Fargas 25-27
08005 Barcelona SPAIN
E-Mail: fabio.canova@upf.edu

Evi Pappa
Department of Economics
London School of Economics
Houghton Street
London WC2A 2AE
UK
Tel: 44-20-7955-7584
Fax: 44-20-7831-1840
E-Mail: evi.pappa@uab.es
M1  - published as Fabio Canova, Evi Pappa. "Does it Cost to be Virtuous? The Macroeconomic Effects of Fiscal Constraints," in Richard H. Clarida, Jeffrey Frankel, Francesco Giavazzi and Kenneth D. West, editors, "NBER International Seminar on Macroeconomics 2004" The MIT Press (2006)

AB  - We study whether and how fiscal restrictions alter the business cycle features of macrovariables for a sample of 48 US states. We also examine the "typical" transmission properties of fiscal disturbances and the implied fiscal rules of states with different fiscal restrictions. Fiscal constraints are characterized with a number of indicators. There are similarities in second moments of macrovariables and in the transmission properties of fiscal shocks across states with different fiscal constraints. The cyclical response of expenditure differs in size and sometimes in sign, but heterogeneity within groups makes point estimates statistically insignificant. Creative budget accounting is responsible for the pattern. Implications for the design of fiscal rules and the reform of the Stability and Growth Pact are discussed.
ER  -