Do fiscal rules reduce government borrowing costs in developing countries?

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  • Do fiscal rules make a difference in developing countries

    Accepted author manuscript, 437 KB, PDF document

    Embargo ends: 1/11/99

We examine whether adopting numerical fiscal rules framework to guide fiscal policy helped reduce the cost of borrowing by governments in a sample of 61 low- and middle-income countries for 1985–2017, 24 of which adopted such rules. We address the self-selection problem of policy adoption by applying a variety of propensity score matching methods and show that the average treatment effect of fiscal rules on government borrowing costs is quantitatively quite large and statistically significant in rule adopting countries. We also find that the presence of institutional arrangements to strengthen fiscal rules results in a larger reduction in borrowing costs than is the case without these arrangements, which is consistent with strong rules adding to the credibility of the fiscal policy framework.
Original languageEnglish
JournalInternational Journal of Finance and Economics
Publication statusAccepted/In press - 13 Sep 2019
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