The Role of Fiscal Rules in Determining Fiscal Performance

Abstract

Kennedy, Robbins and Delorme examine the importance of fiscal rules in determining budgetary outcomes. After briefly reviewing the rationale for rules, the paper compares the rules introduced in several countries at the national and subnational levels. It notes that while several countries have introduced restrictions on deficit, debt, tax and expenditure levels, some countries have focused their efforts on increasing transparency and accountability in the conduct of fiscal policy. Kennedy, Robbins and Delorme also evaluate the evidence about the impact of rules in terms of budgetary consolidation in the 1990s. The evidence indicates that both countries with rules and countries without rules implemented successful fiscal adjustments. From this, the authors conclude that rules may be helpful in achieving fiscal consolidation and may even be necessary in certain countries, but they are clearly not necessary in all countries. They also find that empirical studies of fiscal rules generally support this conclusion. However, determining the conditions under which fiscal rules are indeed necessary to ensure fiscal discipline remains an area for further research.