FISCAL RULES AND DISCRETION UNDER LIMITED ENFORCEMENT

• 成果类型: Article
• 署名作者: Halac, Marina; Yared, Pierre
• 署名单位: Yale University; Centre for Economic Policy Research - UK; Columbia University; National Bureau of Economic Research
• 刊物名称: ECONOMETRICA
• ISSN/ISSBN: 0012-9682
• DOI: 10.3982/ECTA16962
• 发表日期: 2022
• 页码: 2093-2127
• 关键词: collective dynamic choice; DELEGATION; games

摘要

We study a fiscal policy model in which the government is present-biased towards public spending. Society chooses a fiscal rule to trade off the benefit of committing the government to not overspend against the benefit of granting it flexibility to react to privately observed shocks to the value of spending. Unlike prior work, we examine rules under limited enforcement: the government has full policy discretion and can only be incentivized to comply with a rule via the use of penalties which are joint and bounded. We show that optimal incentives must be bang-bang. Moreover, under a distributional condition, the optimal rule is a maximally enforced deficit limit, triggering the maximum feasible penalty whenever violated. Violation optimally occurs under high enough shocks if and only if available penalties are weak and such shocks are relatively unlikely. We derive comparative statics showing how rules should be calibrated to features of the environment.