Do fiscal rules reduce government borrowing costs in developing countries?

Thornton, John and Vasilakis, Chrysovalantis (2020) Do fiscal rules reduce government borrowing costs in developing countries? International Journal of Finance and Economics, 25 (4). pp. 499-510. ISSN 1076-9307

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We examine whether adopting a numerical fiscal rule 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.

Item Type: Article
Uncontrolled Keywords: fiscal rules,government borrowing costs,propensity score matching,fiscal rules,developing countries,credibility,economics and econometrics,accounting,finance ,/dk/atira/pure/subjectarea/asjc/2000/2002
Faculty \ School: Faculty of Social Sciences > Norwich Business School
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Depositing User: LivePure Connector
Date Deposited: 22 Oct 2019 13:30
Last Modified: 31 Jan 2024 02:20
DOI: 10.1002/ijfe.1771


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