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Fiscal Discipline and Exchange Rates: Does Politics Matter?
Scottish Journal of Political Economy ( IF 0.913 ) Pub Date : 2020-08-09 , DOI: 10.1111/sjpe.12262
Joao Tovar Jalles 1, 2, 3, 4 , Carlos Mulas‐Granados 5 , José Tavares 6
Affiliation  

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.

中文翻译:

财政纪律和汇率:政治重要吗?

我们考察汇率制度对财政纪律的影响,同时考虑到潜在政治条件的影响。我们提出了一个模型,其中强大的政治(定义为政策制定者面临更长的政治视野和更高的凝聚力)与更好的财政绩效相关联,但固定汇率可能会逆转这一结果并导致财政纪律减少。我们通过对 1975 年至 2012 年覆盖 79 个国家的面板样本进行回归分析来证实这些假设。我们的实证结果还表明,强政治对财政纪律的积极影响不足以抵消处于/转向固定状态的负面影响汇率。最后,我们使用综合控制方法来说明欧元下从灵活汇率到完全固定汇率的过渡如何对欧洲国家的财政纪律产生负面影响。我们的结果对许多重要的敏感性检查都是稳健的,包括不同的估计量、财政纪律的替代代理和子样本分析。
更新日期:2020-08-09
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