Behavioral responses to fiscal rules

Evidence from Czech municipalities

Bibliographic Data

ID20201112
AuthorsLucie Sedmihradská (0000-0001-5474-2673, Prague University of Economics and Business Department of Public Finance), Markéta Arltová (0000-0001-7313-6927, Prague University of Economics and Business Department of Public Finance)
Year2026
Volume38
Issue3
Pages490-507
Publication date2026-06-24
Peer ReviewedYes
Open AccessNo
TypeARTICLE
VenueJournal of Public Budgeting Accounting & Financial Management (JOURNAL)
Journal identifiersISSN: 1096-3367 • E-ISSN: 1945-1814
PublisherEmerald (PUBLISHER)
DOI10.1108/jpbafm-06-2025-0161
OpenAlexW7126396975
LanguageEN
References cited29

Purpose The paper examines how the introduction of a debt rule affects local governments’ debt and savings management. The analysis explores anticipatory and compliance behavior driven by blame avoidance rather than direct financial sanctions in Czech municipalities before and after the introduction of the numerical debt rule in 2017. Design/methodology/approach The paper uses a sharp regression discontinuity design. The analysis focuses on 676 municipalities with debt ratios near the debt limit at 60% of average revenues and compares debt and saving management below and above the limit using data for 2015 to 2020. Hypotheses describing the pre-rule, anticipation and post-rule behavior are verified. Findings The paper finds that Czech municipalities adjusted their fiscal behavior in response to the introduction of the debt rule. Before the rule, no significant differences in debt or savings management were observed. After the rule’s announcement, municipalities slightly above the limit reduced savings, demonstrating anticipatory behavior. After the rule was enforced, municipalities just below the debt limit actively managed their debt and savings to avoid exceeding the debt limit. These behavioral changes confirm the influence of reputational concerns and blame avoidance, even in the absence of immediate sanctions. Originality/value It applies the behavioral model of the budgetary process to municipal finance and integrates blame avoidance theory and cognitive biases into the analysis of fiscal rule effects. It uses a sharp regression discontinuity design to evaluate responses to debt rule implementation. It shows that fiscal rules have impact even without immediate formal sanctions

Blame · Debt · Debt levels and flows · Debt-to-GDP ratio · External debt · Internal debt · Revenue · Sanctions · Fiscal Policies and Political Economy · Local Government Finance and Decentralization · Public Policy and Administration Research

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