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A New Fiscal Rule

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Author Info

  • Steven A. Symansky
  • Xavier Debrun
  • Natan P. Epstein

Abstract

We propose a fiscal rule that fulfills a specific debt reduction objective while maintaining significant fiscal flexibility-two overarching concerns in Israel. Not unlike the Swiss "debt brake," the rule incorporates an error-correction mechanism (ECM) through which departure from the debt objective affects binding medium-run expenditure ceilings. Two variants of our ECM rule are shown to be superior to a comparable deficit rule in terms of attaining the debt objective and allowing for fiscal stabilization while supporting medium-term expenditure planning. Given its relative sophistication, a proper implementation of the ECM rule requires supportive fiscal institutions, including independent input and assessment.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/87.

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Length: 27
Date of creation: 01 Apr 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/87

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Keywords: Public debt; Budget deficits; Government expenditures; expenditure; expenditure growth; fiscal policy; fiscal rules; expenditure ceilings; budget balance; fiscal rule; government deficit; fiscal discipline; expenditure ceiling; fiscal stabilization; expenditures; government expenditure; fiscal institutions; fiscal consolidation; expenditure planning; expenditure framework; fiscal adjustment; tax cuts; fiscal stance; fiscal targets; fiscal impulses; fiscal policy rules; tax burden; fiscal performance; central government budget; public spending; government budget; public expenditure; medium-term expenditure planning; fiscal sustainability; central government expenditure; medium-term expenditure; tax policy; budget surplus; fiscal policies; national fiscal rules; expenditure restraint; fiscal contractions; expenditure items; central government budgets; government spending; budget deficit; medium-term budgetary frameworks; expenditure plans; annual budget; higher expenditure; fiscal model; fiscal consolidation efforts; excessive deficits; total expenditure; budget process; budget expenditure; fiscal position; public deficits; expenditure paths; structural budget balance; fiscal agencies; budgetary flows; tax increases; fiscal flexibility; fiscal effort; expenditure outcomes; fiscal planning; multiyear expenditure; fiscal deficit;

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References

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  1. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
  2. Hallerberg, Mark & Wolff, Guntram B., 2006. "Fiscal institutions, fiscal policy and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,35, Deutsche Bundesbank, Research Centre.
  3. Oya Celasun & Xavier Debrun & Jonathan David Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries," IMF Working Papers 06/67, International Monetary Fund.
  4. 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), Swiss Society of Economics and Statistics (SSES), vol. 142(III), pages 307-330, September.
  5. Natan P. Epstein & Selim Elekdag & Marialuz Moreno Badia, 2006. "Fiscal Consolidation in Israel," IMF Working Papers 06/253, International Monetary Fund.
  6. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, Elsevier, vol. 51(2), pages 453-477, February.
  7. Stephan Danninger, 2002. "A New Rule," IMF Working Papers 02/18, International Monetary Fund.
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Cited by:
  1. Olivier Basdevant, 2012. "Fiscal Policies and Rules in the Face of Revenue Volatility within Southern Africa Customs Union Countries (SACU)," IMF Working Papers 12/93, International Monetary Fund.
  2. World Bank, 2008. "Montenegro : Beyond the Peak, Growth Policies and Fiscal Constraints, Public Expenditure and Institutional Review," World Bank Other Operational Studies 7831, The World Bank.

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