## Structural Breaks in Fiscal Performance: Did Fiscal Responsibility Laws Have Anything to Do with Them?

_IMF Working Papers, November 1, 2010_

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## Bibliographic details
- Authors: Leandro Medina, Carlos Caceres, Ana Corbacho
- Published: November 1, 2010
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781455209484.001

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### Summary
- Objective: Test empirically whether fiscal performance, measured as the level of primary fiscal balances and their volatility, improved after implementation of Fiscal Responsibility Laws (FRLs) in a sample of Latin American and advanced economies.
- Key claim: Traditional econometric approaches that rely on dummies in time series or panel regressions yield biased estimates; the paper proposes an alternative empirical strategy that allows the timing of FRL effects to be unknown while controlling for business and commodity cycles.
- Main overall finding: Limited empirical evidence that Fiscal Responsibility Laws have had a distinguishable effect on fiscal performance.
- Caveat: FRLs could still produce other positive effects on the conduct of fiscal policy not analyzed here (for instance, enhanced transparency and guidance in the budget process and lower risk premia).

### Methodology
- Approach: Empirical strategy that does not impose a priori timing for the effect of FRLs on fiscal performance and controls for business and commodity cycles’ impacts on fiscal outcomes.
- Contrast: Traditional methods use FRL dummy variables in time series or panel regressions; authors argue these methods yield biased estimates.

### Findings and Evidence
- Fiscal level and volatility:
  - The study measures fiscal performance using: the level of primary fiscal balances and their volatility.
  - Result: Limited empirical evidence supporting a distinguishable effect of FRLs on these measures.
- Limitations and alternatives:
  - The analysis focuses on level and volatility of primary fiscal balances; other potential FRL effects (transparency, budget guidance, risk premia) are acknowledged but not analyzed.

### Policy implications and recommendations
- Interpretation for policymakers:
  - Do not assume that adoption of FRLs will automatically yield measurable improvements in the level or volatility of primary fiscal balances.
  - Consider complementary reforms that enhance transparency and budget process guidance, which may yield benefits not captured by primary-balance level/volatility metrics.
  - Be aware that FRLs might lower risk premia even if not visibly changing primary-balance metrics; monitor broader financial and institutional indicators in addition to fiscal-balance measures.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/structural-breaks-in-fiscal-performance-did-fiscal-responsibility-laws-have-anything-to-do-24336_