01879cas a2200241 a 4500 AALejournalIMF002368 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451850123 1018-5941 BD-DhAAL BD-DhAAL Sun, Yan. Do Fixed Exchange Rates Induce More Fiscal Discipline? / Yan Sun. Washington, D.C. : International Monetary Fund, 2003. 1 online resource (31 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2003/078 Full text available on IMF http://elibrary.imf.org/view/journals/001/2003/078/001.2003.issue-078-en.xml IMF e-Library