This major international handbook provides a complete review and guide to past and present knowledge in this essential field of inquiry. Assembling an outstanding team of scholars from around the world, it comprehensively explores the current state of the art in academic thinking and the current structures and processes for the administration of public policy following this period of rapid transformation and change.

Fiscal Rules and Fiscal Policy

Fiscal rules and fiscal policy

Formal rules in budgeting are designed to address certain problems. This chapter classifies formal rules according to the problems some rules are meant to solve. It begins with a consideration of the common pool resource problem, which develops when spending is targeted to a specific group but the taxes used to pay for it come from general revenues. It then considers a related issue that can exist when there are multiple levels of government, namely the moral hazard problem. Lower levels of government are prone to spend more when they expect that higher levels of government are going to bail them out. The third topic is the ‘principal-agent’ problem. Budgets inevitably involve some form of delegation ...

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