The Political Economy of Fiscal Rules
: Adoption, Compliance, and Enforcement

Student thesis: Doctoral ThesisDoctor of Philosophy


Fiscal rules have emerged over time as a response to governments' challenges in managing their public finances. As economies have become more complex, sustainable fiscal policy has become increasingly important. Governments have used fiscal rules to impose discipline on their spending and borrowing and to help ensure they can meet their financial obligations. As a result, the prevalence of fiscal rules has increased in recent decades.

In this thesis, I focus on understanding how fiscal rules are implemented across a diverse group of countries. The research fills gaps in current knowledge by examining the factors that influence the adoption of fiscal rules, the effects of these rules on budget balances and bond yields, and the impact of violating fiscal rules on sovereign bonds. The effectiveness of fiscal rules is often assumed to be based on certain assumptions that have not been tested empirically. This research investigates the validity of these assumptions to inform the design of fiscal rules that are effective and efficient.

The first chapter provides a brief overview of the history of fiscal rules and the current state of research on the topic. It also outlines the main research questions and hypotheses that will be addressed in subsequent chapters.

The second chapter presents a literature review of existing studies on fiscal rules. This includes an examination of the theoretical foundations of fiscal rules, the various types of fiscal rules that have been implemented, and the factors that influence their adoption and effectiveness. The literature review also discusses the benefits and drawbacks of fiscal rules and identifies gaps in the existing research that this study aims to fill.

The third and fourth chapter presents the theoretical motivation that underpins the existence of fiscal rules and the methodology used in this study. This includes a description of the deficit bias, its possible causes, and types of fiscal rules. I also describe why I chose to use quantitative methods, limitations, and steps that can be taken to address potential sources of bias and error in the analysis.

Chapter five presents a novel dataset on fiscal rule breaks in EU member states. The dataset is an original and unique contribution that I make in this thesis, and it extends the current understanding of fiscal rules and expands avenues for future research.

Chapters six, seven, and eight are thematic chapters that each develop research questions and hypotheses for which empirical results are presented. They consider; i) preconditions for fiscal rule existence, ii) how the budget balance and sovereign borrowing cost respond to the existence of fiscal rules under different regimes, and iii) if the fixed income market reacts to fiscal rules being broken. In addition, these chapters include chapter-specific literature reviews, empirical analysis, and detailed discussions of their respective results.

Overall, I provide a comprehensive analysis of the adoption and effects of fiscal rules in this thesis, using a quantitative empirical method based on regression analysis.
Date of Award1 Jul 2023
Original languageEnglish
Awarding Institution
  • King's College London
SupervisorAdam Chalmers (Supervisor), Simona Talani (Supervisor) & Jonathan Portes (Supervisor)

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