The political economy of fiscal rules and financial markets: when, why, and how does the market enforce rules?

Lead Research Organisation: King's College London
Department Name: European Studies


Fiscal rules (FRs) were swiftly employed during the great
recession as a response to procyclical policy. The recent
stand-off between the Italian government and the European
Commission over FRs, however, raises serious concerns
about how they are enforced (Khan & Brunsden, 2018). This
development is worrying as FRs have been a key post-crisis
institutional response from international organisations such
as the IMF and European Commission (Frayne, Jaffee, & Riso,
2013; Kumar et al., 2009). Recent experiences call into
question the validity of key assumptions about the
enforceability of FRs, such as the market discipline
hypothesis (Bishop, Damrau, & Miller, 1989) which states
that markets discipline sovereigns by increasing bond yields.
Likewise, it is uncertain if non-democratic countries enjoy the
same benefit as democracies when adopting FRs, or if a
7 / 12
'democratic advantage' exists (Schultz & Weingast, 2003).
My aim is to address a critical debate in the existing
literature about rule enforceability, which is couched in a
broader debate about IMF conditionality (Mishkin, 2004;
Rodrik, 2000). I will research FRs and financial markets across
three dimensions investigating: when and why FRs are
adopted, when markets enforce rules, and if markets enforce
FRs in non-democracies. The question about rule
enforceability will be addressed through a neoliberal
institutionalist framework (Keohane, 1989) and will contribute
with empirical work on the enforceability of institutions.


10 25 50

Studentship Projects

Project Reference Relationship Related To Start End Student Name
ES/P000703/1 01/10/2017 30/09/2027
2285964 Studentship ES/P000703/1 01/10/2018 30/12/2021 Tehminah Naz Malik