Exchange Rate Regimes and Fiscal Discipline in OECD Countries

Heinemann, Friedrich

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URN: urn:nbn:de:bsz:180-madoc-6462
Document Type: Working paper
Year of publication: 1999
The title of a journal, publication series: None
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Subject headings (SWD): OECD , Fiskalpolitik , Europäische Union / Währungsunion
Abstract: Since the start of EMU national fiscal policy in the Eurozone can be conducted almost without paying any attention to consequences for the exchange rate. This might lower fiscal discipline. In order to shed light on the empirical relevance of this consideration, the impact of the exchange rate regime and a number of other variables on primary deficits is analysed in a panel estimation for 20 OECD countries from 1970 onwards. The conclusion is that the exchange rate regime as such is not relevant for the fiscal balance – a result backing an optimistic view on fiscal discipline under EMU. On the other hand, however, there is the result that a high degree of openness has a deficit reducing impact. This is a worrying result in the EMU context since the single currency reduces openness. The study underlines the efficacy of the Maastricht criteria. The criteria and not economic necessity have dictated the consolidation in the EU during the 90s.
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