Do fiscal rules shape private-sector investment decisions?

We investigate whether fiscal rules impact private domestic investment. Using data spanning 100 advanced and developing countries over the period 1990-2019 and applying the entropy balancing method, we reveal that implementing fiscal rules significantly improves private -sector investment. This finding is robust to a wide set of economic and econometric tests. Moreover, we perform a range of heterogeneity tests and find that the effect of fiscal rules only applies in developing countries and is amplified in good times and in countries with a strong fiscal stance. However, the benefits of fiscal rules are mitigated in resource -rich countries and during economic crises. Finally, we explore the underlying mechanisms and show that fiscal discipline, a composition effect fostering public investment, and macroeconomic stability are three driving forces that produce the stimulative effect of fiscal rules.