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The Swiss Debt Brake: How it Works and What Can Go Wrong

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  • Frank Bodmer

Abstract

After a decade with large budget deficits, Switzerland introduced a debt brake in 2002. It is an expenditure rule with sets a limit on expenditure both during boom and during recession periods and applies to the federal budget and account. Judging from simulations using historical data, the mechanism works more or less as intended. There is a sanction mechanism present since deviations from the expenditure limit have to be corrected in the future. Short-term fixes are excluded to some degree since extraordinary revenue is not included in the mechanism. However, the debt brake has a number of weak spots which could lead to a failure to achieve the target of balanced accounts.

Suggested Citation

  • Frank Bodmer, 2006. "The Swiss Debt Brake: How it Works and What Can Go Wrong," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 142(III), pages 307-330, September.
    • Handle: RePEc:ses:arsjes:2006-iii-1
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    Cited by:

    1. Basil Guggenheim & Mario Meichle & Thomas Nellen, 2019. "Confederation debt management since 1970," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 155(1), pages 1-23, December.
    2. Mar Delgado-Téllez & Javier J. Pérez, 2020. "Institutional and Economic Determinants of Regional Public Debt in Spain," Public Finance Review, , vol. 48(2), pages 212-249, March.
    3. Christian F. Pfeil & Lars P. Feld, 2024. "Does the Swiss Debt Brake Induce Sound Federal Finances? A Synthetic Control Analysis," Public Finance Review, , vol. 52(1), pages 3-41, January.
    4. Radygin Alexandr & Potapova A. & Levashenko Antonina & Girich Maria & Belev Sergey & Tishchenko Tatiana & Sokolov Ilya, 2020. "Monitoring of Russia's Economic Outlook. Trends and Challenges of Socio-economic Development," Monitoring of Russia's Economic Outlook. Trends and Challenges of Socio-Economic Development, Gaidar Institute for Economic Policy, issue 10, pages 1-25, June.
    5. Eric M. Leeper, 2016. "Should Central Banks Care About Fiscal Rules?," NBER Working Papers 22800, National Bureau of Economic Research, Inc.
    6. Alain Geier, 2012. "Application of the Swiss Fiscal Rule to Artificial Data: A Monte Carlo Simulation," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(I), pages 37-55, March.
    7. Dolls, Mathias & Peichl, Andreas & Zimmermann, Klaus F., 2011. "Eine Herausforderung für die G20: Global vereinbarte Schuldenbremsen und transnationale fiskalpolitische Aufsichtsgremien," IZA Standpunkte 45, Institute of Labor Economics (IZA).
    8. International Monetary Fund, 2013. "Republic of Poland: Selected Issues," IMF Staff Country Reports 2013/220, International Monetary Fund.
    9. Mr. Erik J. Lundback, 2008. "Medium-Term Budgetary Frameworks - Lessons for Austria from International Experience," IMF Working Papers 2008/163, International Monetary Fund.
    10. Mrs. Nina Budina & Ms. Andrea Schaechter & Miss Anke Weber & Mr. Tidiane Kinda, 2012. "Fiscal Rules in Response to the Crisis: Toward the "Next-Generation" Rules: A New Dataset," IMF Working Papers 2012/187, International Monetary Fund.
    11. Mr. Steven A. Symansky & Mr. Xavier Debrun & Mr. Natan P. Epstein, 2008. "A New Fiscal Rule: Should Israel “Go Swiss?”," IMF Working Papers 2008/087, International Monetary Fund.
    12. Tobias Beljean & Alain Geier, 2013. "The Swiss Debt Brake - Has It Been a Success?," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 149(II), pages 115-135, June.
    13. Marianne Yousseff ISKANDAR, 2016. "The Effectiveness of Fiscal Rules - The Case of Switzerland," Journal of Social and Administrative Sciences, KSP Journals, vol. 3(3), pages 264-267, September.
    14. Balázs Égert, 2011. "Bringing French Public Debt Down: The Options for Fiscal Consolidation," OECD Economics Department Working Papers 858, OECD Publishing.
    15. International Monetary Fund, 2008. "Israel: Selected Issues," IMF Staff Country Reports 2008/063, International Monetary Fund.
    16. Jörg-Uwe Hahn & Kai A. Konrad & Eckhard Janeba & Max Groneck & Robert C. Plachta, 2008. "Federalism Commission II: New debt regulations for the federal and state governments - how should the financial relationships between the federal and state governments be re-structured?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 61(09), pages 03-14, May.
    17. Bai, Yuting & Leeper, Eric M., 2017. "Fiscal stabilization vs. passivity," Economics Letters, Elsevier, vol. 154(C), pages 105-108.
    18. Hahn, Jörg-Uwe & Konrad, Kai A. & Janeba, Eckhard & Groneck, Max & Plachta, Robert C., 2008. "Föderalismuskommission II: Neue Schuldenregelung für Bund und Länder und Altschuldenhilfe - wie sollten die Finanzbeziehungen von Bund und Ländern neu geordnet werden?," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 61(09), pages 3-14.

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    More about this item

    Keywords

    Switzerland; budget rules; expenditure limits; deficit bias;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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