TY - JOUR

T1 - Fiscal rules and Government borrowing costs

T2 - International evidence

AU - Thornton, John

AU - Vasilakis, Chrysovalantis

PY - 2018/1

Y1 - 2018/1

N2 - 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.

AB - 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.

U2 - 10.1111/ecin.12484

DO - 10.1111/ecin.12484

M3 - Article

VL - 56

SP - 446

EP - 459

JO - Economic Inquiry

JF - Economic Inquiry

SN - 1465-7295

IS - 1

ER -