Research note: Fiscal rules, fiscal outcomes and financial market behaviour

Since the outbreak of Eurozone’s Sovereign Debt Crisis, a range of fiscal policy measures have been adopted at the European Union (EU) and national levels which have given rise to claims of a significant reinforcement of fiscal policy constraint. Given the prominence and reinvigorated political appeal of fiscal rules in the EU and beyond, it is disconcerting how little we actually know about the link between fiscal rules, budgetary outcomes and market behaviour. In this research note we aim to take stock of the existing literature and challenge its contribution to the current policy-debate on the merits of fiscal rules. Specifically we will focus on problems linked to endogeneity, measurements and contextuality.