Fiscal Rules—Anchoring Expectations for Sustainable Public Finances

Policy Papers ◽  
2009 ◽  
Vol 09 ◽  
Author(s):  

The sharp increase in fiscal deficits and public debt in most advanced and several developing economies has raised concerns about the sustainability of public finances and highlighted the need for a significant adjustment over the medium term. This paper assesses the usefulness of fiscal rules in supporting fiscal consolidation, discusses the design and implementation of rules based on a new data base spanning the whole Fund membership, and explores the fiscal framework that could be adopted as countries emerge from the crisis.

Author(s):  
G. C. Lim ◽  
Paul D. McNelis

This chapter uses an example to demonstrate the steps of specifying, calibrating, solving, and simulating a macroeconomic model in order to evaluate alternative policies for reducing domestic public debt. It extends the simple closed-economy New Keynesian model by incorporating the zero lower bound and asymmetric wage adjustment (in which wages are much more rigid in the downward direction). We examine the dynamics of adjustment, given a sharp increase in government debt due to a once-only big increase in spending. We find that selective tax-rate rules, incorporating a degree of tax relief in a period of fiscal consolidation, are effective instruments for rapidly reducing the overhang of a large stock of public debt.


Significance Oman and Bahrain, already struggling with rising public debt levels and high fiscal deficits, are in the most exposed medium-term position. Impacts Governments will seek to avoid cutting expenditure on public-sector salaries. Private businesses will lay off many of their expatriate workers. Gulf economic contractions will significantly reduce global remittance flows.


2015 ◽  
Vol 4 (4) ◽  
pp. 31
Author(s):  
Doina Dascalu ◽  
Dragos Ungureanu

. The article presents an analysis of the way public debt operates in Romania, in the context of states economies trends, of complex and topical financial environments.In the context of a functional market economy, the issues faced by certain states involving high public debt levels or potential budgetary pressure risks converge towards the idea that public finances sustainability needs to be a major challenge at the level of public policies. Considering this situation, the adequate policies to tackle public finances sustainability need to have, as a launching base, the overall strategy of the European Union, focused on the three component parts, namely abatement of public debt, increasing productivity and employment and last but not least, reforming the pension and healthcare systems.To ensure reasonably sustainable public debt levels, EU member states need to attain medium term strategic budgetary objectives, that would ensure a downward trend of public debt, a condition which can be fulfilled by compliance with budget policies rules, which ground development in the macroeconomic framework.


2012 ◽  
Vol 15 (2) ◽  
pp. 65-78 ◽  
Author(s):  
Joanna Działo

This article examines and assesses the influence of political factors on the effectiveness of pursuing fiscal policy. These factors usually cause and maintain a high budget deficit and public debt. Moreover, the problems of influence of fiscal rules on increased effectiveness of the pursued fiscal policy have been discussed. The fiscal rules are to assure macroeconomic stability in economy and improve credibility of the pursued fiscal policy by reducing the deficit, government spending, and public debt. Examples of applicable fiscal rules in the EU and Poland are presented and an attempt is made to evaluate the effectiveness of these rules in the process of consolidation of public finances.


2020 ◽  
Vol 20 (57) ◽  
Author(s):  

The Malaysian economy is stable despite domestic and external challenges. The authorities are making progress on their reform agenda including governance reforms and measures to improve the transparency and management of public finances. Policies should focus on medium-term fiscal consolidation, while safeguarding growth and financial stability. Structural reforms are needed to enshrine in law main governance measures, and to boost productivity to achieve high income status and inclusive growth.


2020 ◽  
Vol 20 (92) ◽  
Author(s):  

This Selected Issues paper analyzes Belgium’s fiscal stance using a structural stochastic model. This note uses a theoretical model that explicitly accounts for the trade-offs between the short-term cost of fiscal tightening and the long-term gains associated with higher fiscal buffers. This paper shows that once the current crisis is over, rebuilding fiscal buffers is essential to helping Belgium confront the next shock from a stronger fiscal position. Overall, this illustrates a major motivation for a credible medium-term fiscal consolidation strategy. When a government reduces debt, it increases its capacity to react to shocks later. This entails a short-term cost that is, in the case of Belgium, worth the effort as this capacity to smooth future shocks increases future welfare. In addition, a large capacity to react with fiscal policy reduces the risk of long-lasting effects of a large crisis. Historical data show that in the past, the Belgium government’s reaction to the cycle was limited to a single event. By contrast, if Belgium could firmly anchor public debt on a downward path, future governments would be able to offset downturns while keeping debt sustainability concerns under control.


Author(s):  
Galina Semeko ◽  

The crisis associated with the COVID-19 pandemic has led to unprecedented fiscal interventions in all affected countries, including Russia. The sharp increase in unplanned budget spending in the context of the collapse of tax and export revenues created the threat of destabilization of public finances and of deployment of a debt spiral. The article presents the expert opinions on the economic impact of the growth of such debt and on the threshold value of debt relative to GDP, as well as on strategies that can prevent a debt crisis. Discusses the forecasts of the growth of budgetary expenditures and public debt, as well as the fiscal incentives applied in different countries.


2020 ◽  
Vol 66 (1) ◽  
pp. 47-64
Author(s):  
David Cronin

Harmonised data from the 2013 to 2018 Stability and Convergence Programmes (SCPs) are used to assess whether member states are acting to meet EU fiscal requirements and, in particular, their medium-term objectives (MTOs). EU AMECO data are employed to check whether planned fiscal policy, set out in the SCPs, materialises ex-post. The main finding is that planned changes in the fiscal stance aim towards meeting the MTO when that target has not yet been attained but less effort occurs in practice. Member states who have already met their MTO loosen their fiscal stance. The policy message is that, in general, the enhanced, post-crisis EU fiscal framework is delivering budgetary policy that contributes to avoiding excessive deficit and debt positions. The fiscal consolidation actually undertaken, however, is less than planned and the upside of the economic cycle does not see greater effort towards meeting MTOs. Moreover, those member states with prior excessive deficits do not make, nor plan, any additional fiscal effort over other member states also striving to meet their MTO. The policy reaction to the economic cycle is pro-cyclical in nature.


Author(s):  
Galina Semeko ◽  

The crisis associated with the COVID-19 pandemic has led to unprecedented fiscal interventions in all affected countries, including Russia. A sharp increase in unplanned budget expenditures, in the face of a collapse of tax and export revenues, has created a threat of public finances destabilisation and debt spiral launch. The article presents expert opinions on the impact of debt growth on the economy, the threshold of debt towards GDP, and strategies that can prevent a debt crisis. Forecasts of growth in budget expenditures and public debt, as well as fiscal incentives applied in some countries are discussed.


2016 ◽  
Vol 63 (2) ◽  
pp. 149-159
Author(s):  
Tatiana Covalschi ◽  
Sebastian Lazăr

This paper analyses public finances sustainability in the Republic of Moldova under the European Union fiscal rules, by estimating the structural budget balance indicator using a three steps methodology. We concluded that, except for 2009, the Republic of Moldova complies with the Maastricht numerical fiscal rule; however it does not comply with the new fiscal rules regarding the structural deficit and public expenditures growth that had been set by the Fiscal Compact. The fact that budget deficits and public debt had been sustainable was mainly because of the concessions made by the external creditors in restructuring the public debt and was not a merit of national government. Moreover, since the regular budget deficit and the structural one tell different stories, we strongly advocate for using the latter in order to complement the existing data with a medium-term budgetary view.


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