Tracking Use of Fiscal Rules

• Position: Prepared by of the IMF's European Department and of the IMF's Fcal Affairs Department.

Data Spotlight

Many countries have adopted long-lasting constraints on key budgetary aggregates through numerical limits on deficits, debt, expenditures, or revenue, a new IMF study finds. These limits, called fiscal rules, can help contain pressures to overspend and thereby ensure fiscal responsibility and public debt sustainability. With public finances in distress in many economies, adopting fiscal rules can help bridge the transition to lower deficits while enhancing the credibility of debt and deficit reduction plans. As of end-March 2012, more than 75 countries were operating under national rules or supranational fiscal rules, compared with only five in 1990.

As part of the response to the global financial crisis, next-generation fiscal rules are being put in place. These rules are designed to strike a better balance between sustainability and flexibility goals because they often account for fluctuations in the business cycle, that is, the ups and downs of economic growth. Moreover, they are often complemented by other institutional arrangements, such as fiscal councils entrusted with monitoring fiscal policies and raising public awareness of their impact. The IMF study has also devised a fiscal rule index that summarizes the number of fiscal rules and the comprehensiveness of their design. The index for national fiscal rules shows that emerging economies have caught up to advanced economies and that, since the crisis, both country groups have launched new rules and strengthened characteristics...