External publications

On the macroeconomic effects of fiscal reforms: fiscal rules and public expenditure efficiency

in: Public Choice, first published 25.03.2025

DOI: https://doi.org/10.1007/s11127-025-01275-4
Information

We ask whether fiscal rules improve public expenditure efficiency using a panel of 158 countries from 1990 to 2017. Applying the entropy balancing method to mitigate selection issues in policy adoption, we find robust evidence that implementing a fiscal rule increases expenditure efficiency, with economically and statistically significant effects. Further analysis suggests that the effect of fiscal rules on efficiency is subject to some heterogeneity, depending on the types of rules, their design, macroeconomic factors, and time elapsed since reform adoption. Lastly, we present empirical evidence on the underlying mechanisms and show that the main channel through which fiscal rules enhance efficiency is improved fiscal discipline—via better institutional quality, stronger fiscal balance, and enhanced tax revenue mobilization.