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Sustainability of Public Debt$
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Reinhard Neck and Jan-Egbert Sturm

Print publication date: 2008

Print ISBN-13: 9780262140980

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262140980.001.0001

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On the Effectiveness of Debt Brakes: The Swiss Experience

On the Effectiveness of Debt Brakes: The Swiss Experience

(p.223) 9 On the Effectiveness of Debt Brakes: The Swiss Experience
Sustainability of Public Debt

Lars P. Feld

Gebhard Kirchgässner

The MIT Press

This chapter examines the effects of the three types of constitutional or statutory clauses—fiscal decentralization, direct popular rights, and formal fiscal restraints—on public deficit and debt in the twenty-six Swiss cantons, and is organized as follows. Section 9.2 describes cantonal institutions (called “debt brakes”) aimed at preventing public debt from getting out of control. Section 9.3 presents an econometric model to allow a more systematic analysis of their effects. Section 9.4 discusses the empirical results. Section 9.5 considers the new debt brake that has been introduced at federal level. Section 9.6 discusses the problem of overindebtedness at lower governmental levels that might arise in any federal country. It is shown that with well-designed institutions, federal states might be able to follow a sustainable fiscal policy better than unitary states. Alongside fiscal restrictions, fiscal referenda are useful in achieving that.

Keywords:   Switzerland, fiscal policy, public deficit, public debt, public finance, fiscal decentralization, direct popular rights, formal fiscal restraints, sustainability, fiscal referenda

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