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A New Fiscal Rule; Should Israel “Go Swiss?”

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  • 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.

Suggested Citation

  • Steven A. Symansky & Xavier Debrun & Natan P. Epstein, 2008. "A New Fiscal Rule; Should Israel “Go Swiss?”," IMF Working Papers 08/87, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:08/87
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    References listed on IDEAS

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    1. Hallerberg, Mark & Wolff, Guntram B., 2006. "Fiscal institutions, fiscal policy and sovereign risk premia," Discussion Paper Series 1: Economic Studies 2006,35, Deutsche Bundesbank.
    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. 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 1-3.
    4. Selim Elekdag & Natan Epstein & Marialuz Moreno-Badía, 2007. "Fiscal Consolidation in Israel: A Global Fiscal Model Perspective," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(6), pages 67-86, November.
    5. Stephan Danninger, 2002. "A New Rule; The Swiss Debt Brake," IMF Working Papers 02/18, 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, vol. 51(2), pages 453-477, February.
    7. George Kopits & Steven A. Symansky, 1998. "Fiscal Policy Rules," IMF Occasional Papers 162, International Monetary Fund.
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    Cited by:

    1. Leon du Toit, 2009. "Economic Crises, Stabilisation Policy and Output in Emerging Market Economies," Working Papers 20/2009, Stellenbosch University, Department of Economics.
    2. 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.
    3. 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.
    4. Luc Eyraud & Tao Wu, 2015. "Playing by the Rules; Reforming Fiscal Governance in Europe," IMF Working Papers 15/67, International Monetary Fund.
    5. International Monetary Fund, 2014. "Euro Area Policies; Selected Issues," IMF Staff Country Reports 14/199, International Monetary Fund.
    6. 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.
    7. 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.

    More about this item

    Keywords

    Economic stabilization; Budget deficits; Debt; Public debt; Israel; Government expenditures; Fiscal rules; Fiscal stabilization; Fiscal policy; expenditure; expenditure growth;

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