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A New Fiscal Rule; Should Israel Go Swiss?

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

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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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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  1. Oya Celasun & Xavier Debrun & Jonathan D. Ostry, 2006. "Primary Surplus Behavior and Risks to Fiscal Sustainability in Emerging Market Countries: A "Fan-Chart" Approach," IMF Staff Papers, Palgrave Macmillan, vol. 53(3), pages 3.
  2. 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.
  3. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February.
  4. Selim Elekdag & Natan Epstein & Marialuz Moreno-Badía, 2007. "Fiscal Consolidation in Israel: A Global Fiscal Model Perspective," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(6), pages 67-86, November.
  5. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
  6. 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.
  7. Stephan Danninger, 2002. "A New Rule; The Swiss Debt Brake," IMF Working Papers 02/18, International Monetary Fund.
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