IMF Working Papers

Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting

By Gian M Milesi-Ferretti

October 1, 2000

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Format: Chicago

Gian M Milesi-Ferretti. "Good, Bad or Ugly? On the Effects of Fiscal Rules with Creative Accounting", IMF Working Papers 2000, 172 (2000), accessed December 26, 2024, https://doi.org/10.5089/9781451858563.001

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Do fiscal rules likely lead to fiscal adjustment, or do they encourage the use of ‘creative accounting’? This question is studied with a model in which fiscal rules are imposed on ‘measured’ fiscal variables, which can differ from ‘true’ variables because there is a margin for creative accounting. The probability of detecting creative accounting depends on its size and the transparency of the budget. The model studies the effects on fiscal policy of different rules, separating structural from cyclical effects, and examines how these effects depend on the underlying fiscal distortion and on the degree of transparency of the budget.

Subject: Budget planning and preparation, Expenditure, Fiscal policy, Fiscal rules, Government debt management, Public financial management (PFM)

Keywords: Budget deficit, Budget planning and preparation, Budget rule, Budget transparency, Creative accounting, Fiscal rules, Government debt management, Government preference, Government type, Loss function, Myopic government, WP

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