Fiscal Rules Research Articles

The reform of the fiscal rule in Colombia

Desde la promulgación de la Constitución de 1991 se incrementó el gasto público debido a una serie de derechos que el Gobierno debe garantizar a la población. Según Mauricio Cárdenas, exministro de Hacienda, esta situación llevó a un aumento de estas erogaciones que produjo un déficit fiscal notable en los años noventa del siglo pasado y que obligó al Gobierno a implantar una serie de reformas y medidas para paliar la situación fiscal. Una de esas iniciativas fue la firma de un acuerdo de ajuste macroeconómico con el Fondo Monetario Internacional (FMI) en 1999, que dio origen a la formulación del Marco Fiscal de Mediano Plazo (MGMP) y al Marco de Gasto de Mediano Plazo (MGMP).

Fiscal standards and the trade-off between public debt sustainability and output growth: empirical evidence

ABSTRACT Based on panel data analysis of 92 countries from 2000 to 2021, we provided empirical evidence regarding the effect of fiscal standards on the trade-off between public debt sustainability and output growth. The main result is that fiscal standards decrease the adverse effects of fiscal rules on output growth.

Choosing the European fiscal rule

ABSTRACT In order to quantitatively assess the potential effects from the ongoing transformation of the fiscal framework of the European Union, we evaluate the economic and public finance stabilization properties of two benchmark fiscal rules using a New Keynesian small open economy model. If these fiscal rules are implemented one at a time, having just an expenditure growth rule tends to yield more stable macroeconomic outcomes but more volatile public finances, as compared to having only a structural balance rule. Much of the quantitative differences in relative volatilities can be accounted for by using a modified public expenditure definition in the expenditure growth rule, in particular the removal of debt service payments. The expenditure growth rule with a strong-enough debt anchor strikes the balance between the short-term macroeconomic stability and the medium-term public debt convergence. There is a welfare gain for households from having only an expenditure growth rule.

Бюджетная политика развитых стран: игра по правилам?

The article examines the reasons for the adoption of fiscal rules in advanced economies, their main types, evolution and results of application. In the practice of fiscal policy over the past decades, there has been a steady trend towards budget deficits. There are two main reasons that explain this widespread deficit bias phenomenon: the tendency to push out the financial discipline burden to future governments or even to future generations and the interplay of political processes and interest group activities (common pool effect). Chronic budget deficits and growing public debts have prompted many countries to adopt certain national and supranational (in the EU) fiscal rules – long-lasting constraints on fiscal policy through numerical limits on main budgetary aggregates: budget balance, debt, expenditure or revenue. Fiscal rules can promote financial discipline and reduce the deficit bias in several ways. This influence on fiscal behavior arises from their capacity to “tie the hands” of policymakers and to be a useful signaling tool, helping to reduce the asymmetry of information between policymakers and voters. But the compliance track record with fiscal rules is relatively poor. They have failed to provide sufficient fiscal discipline: the deficit bias persists and the debt-to-GDP ratio in most advanced economies continues to grow. The adopted budget rules are periodically suspended, they are subject to revision, sometimes formally implemented by applying the creative accounting, policymakers use them as a tool of political bargaining. Ultimately, fiscal discipline does not depend on the existence of rules, but on the willingness of politicians to comply with this discipline.

Fiscal Policy in a DSGE Model of a Resource-Rich Emerging Economy: The Nigerian Experience

This paper examines the role of fiscal policy in driving macroeconomic dynamics in a resource-rich emerging economy like Nigeria. Specifically, the paper investigates the macroeconomic implications of fiscal policy using a small open economy dynamic stochastic general equilibrium model that features oil in the fiscal rule. The model is estimated via Bayesian methods using data covering the period 2010Q1- 2021Q1. The results show that the feedback coefficient of output in the fiscal rules is mainly negative, indicating a counter-cyclical fiscal stance. Also, increased oil revenue leads to a rise in government consumption, investment and transfer payments. Further evidence indicates that government spending and transfer payments rose in response to increased debt. We also show that fiscal shocks are highly persistent and that government spending on consumption and investment, tax instruments and transfer are expansionary.

Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia

Fiscal Rules, Austerity in Public Administration, and Political Accountability: Evidence from a Natural Experiment in Colombia

Is public debt environmentally friendly? The role of EU fiscal rules on environmental quality: An empirical assessment

Is public debt environmentally friendly? The role of EU fiscal rules on environmental quality: An empirical assessment

Deficit as Policy: Widening the Scope of Debt-Financed Spending in the United States, 1792-Present Chapter 3 A Fiscal Rules Approach to Explain the Modern Budget Era Problem

Deficit as Policy: Widening the Scope of Debt-Financed Spending in the United States, 1792-Present Chapter 3 A Fiscal Rules Approach to Explain the Modern Budget Era Problem

Analysis of Village Government Financial Reporting in Ratahan District, Southeast Minahasa Regency

This study aims to assess the financial reporting of village government based on transparency, accountability, and efficiency in Ratahan District (Southeast Minahasa Regency). We adopted a qualitative descriptive approach, and data were gathered from in-depth interviews with village officials, community leaders, and residents. The study highlights major hurdles, such as uneven implementation of fiscal rules in the villages and insufficient practical skills among local government leaders. Overall, the key findings also identify that financial reports are often unclear and do not provide enough detail which ultimately detracts from transparency and accountability. In addition, these specific numbers emphasize the importance of planning processes to address community mental health—as demonstrated by their financial planning and process in the Rasi Village Work Program. The study suggests that training should be increased for village officials, financial reports must be standardized and made accurate, and there should be participation of residents of the planned village finance. These measures are necessary to answer the challenges posed and hence improve financial reporters’ practice in village governments.

Functionality of Fiscal Rules in a Low Interest Rate Environment – New Empirical Results for Swiss Cantons

Functionality of Fiscal Rules in a Low Interest Rate Environment – New Empirical Results for Swiss Cantons

Re-evaluating sustainable sovereign debt: A theoretic and econometric evaluation of the suggested new EU fiscal rule

Re-evaluating sustainable sovereign debt: A theoretic and econometric evaluation of the suggested new EU fiscal rule

Measuring the Causal Effects of Fiscal Rules on Fiscal Governance: International Perspective

Measuring the Causal Effects of Fiscal Rules on Fiscal Governance: International Perspective

European sovereign debt risk management: The role of a European Debt Agency

This paper proposes the establishment of a European Debt Agency (EDA) as a tool for the efficient management of Eurozone public debt, to address two primary risks: roll-over and sustainability risk. The proposed EDA would price its loans using a transparent formula that would anchor the price to fundamental economic factors. This approach would encourage fiscal discipline among Member States and avoid inefficient costs resulting from market price deviations from fundamentals, without resorting to debt mutualization. In addition, the paper suggests that adopting flexible fiscal rules alongside the EDA could result in a smoother path towards debt stabilization, by mitigating the macroeconomic effects of excessive fluctuations in risk premia. The simulations indicate that this combination could offer a comprehensive strategy for managing sovereign debt in the Eurozone that would promote fiscal responsibility and stability.

Marrying Fiscal Rules & Investment: a Central Fiscal Capacity for Europe

Marrying Fiscal Rules & Investment: a Central Fiscal Capacity for Europe

Fiscal rules to the test: The impact of the Spanish expenditure rule

Despite the large spread of fiscal rules around the world, there is still not enough evidence of their effectiveness in ensuring fiscal sustainability. Furthermore, there is little evidence of the impact of expenditure rules in countries’ fiscal performance. This paper evaluates the effectiveness of the Spanish expenditure rule that has been in force since 2012 in controlling the growth of public expenditure. We use a synthetic control methodology to analyze the impact of the rule on the evolution of current and primary expenditure within Spanish public administrations (2001–2018), avoiding the potential endogeneity problems of traditional econometric approaches. Overall, we find that the expenditure rule has largely improved budget sustainability by limiting both current and primary expenditure. These results are robust to different levels of government.

Marrying Fiscal Rules & Investment: A Central Fiscal Capacity for Europe

Marrying Fiscal Rules & Investment: A Central Fiscal Capacity for Europe

External Shocks and Business Cycles in Nigeria: Accounting for the Roles of Domestic Oil-Refining Alternative and Oil Price Fiscal Rule

The paper investigates the role of oil price fiscal rule (OPFR), and functional domestic oil refineries in curtailing the effects of external shocks on the Nigerian economy. A dynamic stochastic general equilibrium (DSGE) model is developed, calibrated and estimated using Random Walk Metropolis sampling method. The model is estimated under the benchmark, OPFR-only, and refinery-only scenarios. The results reveal that building or revamping domestic oil refineries may help the economy to withstand long term shock, but in the short run, the OPFR clearly emerges as the most potent. The non-oil external shocks are not significant under the three scenarios. However, oil-related external shocks have significant implications for business cycles in Nigeria, reinforcing the demand- and supply-side shocks. Furthermore, it is found that there is a need for functional domestic oil refineries in insulating the economy against external shocks, however, there is a huge welfare loss associated with refinery development alone. Thus, policymakers should consider instituting the OPFR to stem external shocks in the short run, while building oil refineries to tackle external shocks in the long run.

Fiscal rules: lessons for Ukraine

The purpose of this article is to assess the systematic implementation of fiscal rules in Ukraine and to provide recommendations for their adjustment. It is proved that the introduction of fiscal rules should be carried out in a comprehensive manner: both quantitative restrictions and security measures of an individual and general nature should be regulated by law. Ukraine has introduced two fiscal rules at the legislative level - debt and budget balancing - and formally prescribed all the security conditions recommended by international experience. The peculiarities of the application of fiscal rules in Ukraine include: vagueness and insufficient detail of the safeguard conditions in the budget legislation; lack of regulation of the activities of an independent body responsible for monitoring compliance with fiscal rules (fiscal council); and insufficient coverage of information related to fiscal rules and lack of systematic publication. Recommendations for improving the fiscal rules in Ukraine include the following: a more detailed description of the mechanism of correction in case of exceeding the budgetary indicators of the established limits; specifying the requirements for activating the procedure for derogation from quantitative restrictions to prevent possible abuse; increasing the level of transparency of information on the application of fiscal rules. Regarding the requirement to establish a fiscal council: there are two possible ways for Ukraine to implement this recommendation: the first is to assign the functions of monitoring the implementation of all fiscal rules to the Accounting Chamber of Ukraine, which has the necessary level of independence and partially performs this function; the second is to take into account the difference in the role of the state auditor and the fiscal council, which should primarily contribute to the formation of fiscal policy, another option is to introduce either a new authority or a separate institution with guarantees of operational independence.

Застосування фіскальних правил у період подолання наслідків війни

Introduction. During the period of overcoming the consequences of the COVID-19 pandemic and the full-scale Russian invasion of Ukraine, the risks of compliance with fiscal rules have intensified. Fiscal policy restrictions imposed by them restrained the active budget expansion necessary to increase spending and attract resources to finance adopted state programs. The task of revising the application of fiscal rules, determining rational levels of state budget financing, and preventing critical levels of the state debt from exceeding has arisen. Problem Statement. The negative effects of the pandemic and the war required a sharp increase in public expenditures, adjustments to their structure, and an increase in financial resources to cover them. Compliance with the requirements stipulated by the fiscal rules in force at that time did not allow to go beyond the accepted limits (regarding the maintenance of the indicators of the budget deficit and state debt). There was a need to make changes to the implementation of the budget policy to take into account the restrictions imposed by the fiscal rules. The purpose is to assess the application of fiscal rules in the period of overcoming the consequences of the war, as well as their adjustment in the aspect of reform programs in the EU. Methods. Conceptual approaches to complying with fiscal rules during the war and overcoming its consequences are defined. The issue of methodical provision of fiscal rules, application of mechanisms and budgetary procedures with the aim of their implementation in the practice of state administration is revealed. Results. In Ukraine, the introduction of fiscal rules into the practice of public finance management is in the initial stages. Unlike the EU, they contain only digital limits of budget aggregates, but do not provide for the use of mechanisms for maintaining fiscal stability and debt sustainability. It is also not provided for the application of the necessary budgetary procedures directing the state administration bodies to comply with these rules. During the period of overcoming the consequences of the pandemic and the war, fiscal rules began to restrain the implementation of an active expansionary policy, and therefore their effect was suspended. The recovery of Ukraine involves a review of the use of fiscal rules, taking into account the experience of their reform in the EU. Conclusions. The application of fiscal rules in Ukraine requires significant changes for their application in the practice of budget management, which take into account the results of their use in the EU member states, as well as the features of the economic and social development of our country. Such changes include: the adoption of real medium-term budget goals, the use of preventive mechanisms aimed at developing the state budget taking into account updated approaches, the adjustment of budget operations (in cases of deviations from the accepted requirements), the use of budget procedures that direct the government to comply with fiscal rules for the early correction of such deviations, deepening the transparency of budget operations, strengthening monitoring and evaluation of the use of budget rules by the parliament and specially created independent fiscal institutions.

Threats of sovereign debt overhang in the EU, the new fiscal rules and the perils of policy drift

Threats of sovereign debt overhang in the EU, the new fiscal rules and the perils of policy drift