Do Fixed Exchange Rates Induce More Fiscal Discipline? / Yan Sun.

Format:

Book

Government document

Author/Creator:

Sun, Yan.

Series:

IMF Working Papers; Working Paper ; No. 2003/078

IMF Working Papers

Language:

English

Physical Description:

1 online resource (31 pages)

Place of Publication:

Washington, D.C. : International Monetary Fund, 2003.

Language Note:

English

Summary:

Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline.

Notes:

Bibliographic Level Mode of Issuance: Monograph

Description based on print version record.

ISBN:

9786613778673

9781462310630

146231063X

9781451997545

145199754X

9781281323835

1281323837

9781451896336

1451896336