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The Role of a Stabilizing Expenditure Rule in Fostering Macro-Fiscal Stability: Simulation-Based Evidence from Poland

Author

Listed:
  • Andrzej Torój
  • Joanna Bęza-Bojanowska
  • Rafał Chmura
  • Kareem Ismail
  • Dominika Kroschel
  • Mr. Waikei Raphael Lam
  • Agnieszka Szczypińska
  • Bartłomiej Wiśnicki

Abstract

The paper investigates the properties of Poland’s Stabilizing Expenditure Rule (SER) in the context of economic governance reform in the EU. The analysis uses a granular macroeconometric model (Chmura et al., 2024) that incorporates heterogeneous fiscal multipliers across expenditure items and endogenous tax bases. This novelty supports emprically-grounded simulations to analyze the impact of adverse shocks on output, fiscal balances, and debt dynamics, including through the binding expenditure rules and potential shifts in the composition of expenditures. Our results show that the SER generally ensures lower fiscal deficits (and debt path) than policies that only target the compliance with the Stability and Growth Pact (SGP) thresholds. This is because of the inherent corrective mechanism built in the SER that requires a tightening of fiscal stance when rules are breached. The SER is shown to have counter-cyclical properties, although the extent depends also on the parameters in the correction mechanism.

Suggested Citation

  • Andrzej Torój & Joanna Bęza-Bojanowska & Rafał Chmura & Kareem Ismail & Dominika Kroschel & Mr. Waikei Raphael Lam & Agnieszka Szczypińska & Bartłomiej Wiśnicki, 2025. "The Role of a Stabilizing Expenditure Rule in Fostering Macro-Fiscal Stability: Simulation-Based Evidence from Poland," IMF Working Papers 2025/238, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2025/238
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    JEL classification:

    • C54 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Quantitative Policy Modeling
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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