02216cas a2200265 a 4500 AALejournalIMF017248 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475555769 1018-5941 BD-DhAAL BD-DhAAL Jalles, Joao Tovar. Fiscal Discipline and Exchange Rates : Does Politics Matter? / Joao Tovar Jalles, Carlos Mulas-Granados, Jose Tavares. Washington, D.C. : International Monetary Fund, 2016. 1 online resource (30 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 We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis. Mode of access: Internet Mulas-Granados, Carlos. Tavares, Jose. IMF Working Papers; Working Paper ; No. 2016/230 Full text available on IMF http://elibrary.imf.org/view/journals/001/2016/230/001.2016.issue-230-en.xml IMF e-Library