Bunching at 3 Percent: The Maastricht Fiscal Criterion and Government Deficits
IMF Working Papers, August 3, 2018
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Bibliographic details
- Authors: Francesca Caselli, Philippe Wingender
- Published: August 3, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484371732.001
Methodology
- Combines treatment effects methods with bunching estimation.
- Uses bunching estimation approach, kernel density estimate, and Logit models.
- Derives country-specific impacts under a rank invariance assumption.
Key Findings
- The 3 percent deficit rule acts as a “magnet”, increasing the number of observations around the threshold.
- The rule reduces the occurrence of both large government deficits and surpluses.
- After the rule is adopted, the distribution of government deficits among EU countries displays 20 percent excess mass around the deficit ceiling compared to a counterfactual distribution in which countries have the same observable characteristics but without the fiscal rule.
- Most of the bunching response comes from a reduction in the number of high deficit observations.
- The average treatment effect on fiscal deficits is positive and statistically significant.
- Under rank invariance, all EU countries have seen their fiscal position improve on average as a result of the deficit rule.
Quantitative Results and Statistics
- Deficit threshold examined: 3 percent.
- Excess mass around the deficit ceiling after adoption: 20 percent.
- Publication length: 39 pages.
- Issue/Series identifiers:
- Working Paper No.: 2018/182
- Volume: 2018
- Issue: 182
- DOI: https://doi.org/10.5089/9781484371732.001
- ISBN: 9781484371732
- ISSN: 1018-5941
- Stock No.: WPIEA2018182
Scope and Subject Matter
- Subject areas: Econometric analysis, Fiscal policy, Fiscal rules, Fiscal stance, Government debt management, Logit models, Public financial management (PFM).
- Keywords: balance distribution, bunching estimate, bunching estimation, bunching estimation approach, covariate balancing, deficit bias, deficit ceiling, deficit rule, deficit threshold, Eastern Europe, fiscal policy, fiscal rules, Fiscal stance, FR rule, General government balance, Global, government balance, government balance distribution, Government debt management, government deficit, kernel density estimate, Logit models, Maastricht fiscal criterion, treatment effects, WP.
Policy Implications and Interpretation
- The Maastricht 3 percent fiscal criterion has a measurable concentration effect on reported general government deficits, consistent with a behavioral response to the rule.
- The reduction in high deficit observations implies an improvement in fiscal positions for EU countries on average following the adoption of the rule.
- Positive and statistically significant average treatment effects suggest the rule contributed to tightening fiscal outcomes relative to a counterfactual without the rule.
Source: IMF Working Paper by Francesca Caselli and Philippe Wingender, August 3, 2018.