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This paper assesses the nature of fiscal discipline under alternative exchange rate regimes. First, it shows in a simple theoretical framework that fiscal agencies under a currency union with a fixed exchange rate can have the largest incentive to overspend or \"free-ride\" (compared to those under other exchange rate regimes) owing to their ability to spread the costs of overspending in terms of the inflation tax across both time-given the fixed exchange rate-and space-given the currency union. In contrast, such free-riding behavior does not arise under flexible regimes owing to the immediate inflationary impact of spending. Next, empirically, it shows that fiscal stances in countries with fixed pegs and currency unions regime demonstrate greater free-riding behavior than countries with more flexible regimes in 15 Caribbean countries during 1983-2004.

State budgets in the United States played a significant macroeconomic role in the 1970s and 1980s, and the level of cyclical responsiveness was affected by the severity of statutory and constitutional fiscal restraints. Moving from no fiscal restraints to the most stringent restraints lowered the fiscal offset to income fluctuations by around 40 percent. Simulations indicate that a reduction in aggregate fiscal stabilizers of this size could lead to a significant increase in the variance of aggregate output.

This paper examines the rationale for the imposition of fiscal rules as a way to reduce budgetary imbalances. It presents theoretical arguments for the existence of a \"fiscal deficit bias\" and the empirical evidence on the economic, political and institutional factors leading to this bias. In the context of these findings, it discusses the potential role of legal constraints on the level of key fiscal variables, and of reforms in budgetary procedures in enhancing fiscal discipline. It also evaluates proposals for budgetary reform in Italy.

PurposeThis paper examines the impact of fiscal constraints on education expenditure in Nigeria from 1981 to 2021, using annual time series data.Design/methodology/approachThe study deployed cointegration techniques with structural breaks.FindingsCointegration was found between education expenditure, debt servicing (a proxy for fiscal constraint) and associated variables. In both the long and short run, debt servicing negatively and significantly impacts education expenditure. While government revenue has a positive and significant impact on education expenditure in the long and short run, political institution has a negative and significant impact in the long run. Political institution is thus critical to education financing in Nigeria. The impact of debt is positive and significant in the short run, but not significant in the long run. There is a unidirectional causality from debt servicing to education expenditure.Practical implicationsPolitical institutions are critical towards contracting only productive debts and checkmating the adverse political environment through political will that prioritizes education financing.Originality/valueThe study extends the empirical literature on the fiscal constraint-education expenditure first by investigating fiscal constraint-education expenditure nexus given the institutional environment, and second by extending the methodology using cointegration techniques in the midst of structural breaks.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-10-2022-0682.

A government is fiscally constrained if it is unable to raise sufficient tax revenue to finance the first-best level of public spending. When involved in emission trading, a fiscally constrained government will potentially seek to close its fiscal gap through emission permit sales. This fiscal incentive therefore generates a fiscal externality in the permit market that is endogenous to the extent of fiscal constrainedness among the participating countries. Our theory explains how, and when, fiscal externalities may be expected to arise. Moreover, we show that in a permit market equilibrium with fiscal externalities, the initial allocation of emission permits between countries will affect: (1) the price of emission permits, (2) the global distribution of abatement effort, and (3) total greenhouse gas mitigation costs. This is contrary to the textbook model of emission permit markets. Our findings are especially relevant for the EU which is about to allow for trading in emission rights between EU member countries for all emissions outside the European Emissions Trading System.

This paper examines the interest spending and taxation channels through which EMU could affect the public finances. It provides a framework for examining different views on a further narrowing of interest rate differentials. A model of Blanchard and Fischer is amended to analyze the two channels, and empirical evidence on the tax harmonization process is presented. The paper argues that \"high-debt\" and \"high-tax\" countries pursuing prudent fiscal policies could benefit the most from EMU: if monetary and widespread fiscal discipline are jointly established, interest rates could decline rapidly, while tax harmonization is likely to be gradual.

Compared with developed economies, China implements the Emission Trading Scheme (ETS) within a fundamentally distinct political-economic-institutional context. This study aims to investigate the internal mechanisms and external constraints of emission trading scheme in achieving the dual benefits of environmental preservation and economic advancement within the institutional context of fiscal decentralization. We demonstrate that the transmission from emission reduction to economic returns inherently facilitates the realization of dual benefits, and further propose a restrictive effect of local fiscal pressure on the effectiveness of the emission trading scheme. Using panel data of 284 prefectural-level cities from 2003 to 2017, we conduct a quasi-experiment based on China’s emission trading scheme pilot policy in 2007. The results indicate three primary conclusions: First, the implementation of emission trading scheme in China generally yields dual environmental-economic benefits, with emission reduction serving as a transmission channel for realizing economic gains. Second, high fiscal pressure on local governments not only directly undermines policy effects but also indirectly affects the transmission channel. Finally, the dual benefits have been realized in eastern China, but not yet in the central and western regions. This study contributes to the research on market-oriented environmental governance under fiscal decentralization. The theoretical logic of this study can be applied to a wide range of market-based mechanisms for green factors trading, providing valuable insights for countries facing similar challenges.

By discussing the available theoretical and empirical literature, this paper argues that budget procedures and budget institutions do influence budget outcomes. Budget institutions include both procedural rules and balanced budget laws. We critically assess theoretical contributions in this are and suggest several open and unresolved issue. We also examine the empirical evidence drawn from studies on samples of OECD countries, Latin American countries and the United States. We conclude with a discussion of the normative implications of this literature and with some concrete proposals.