International Practice of Fiscal Rules: Formation of Modern Approaches
Authors: Samvel S. Lazaryan, Ivan V. Nikonov, Anton I. Votinov, Ekaterina A. Gubkova
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According to a range of theoretical studies, implementation of fiscal rules implying numerical limits on fiscal aggregates has some advantages over the discretionary measures. Thus, their use leads to the improvement in deficit management and to the increase of macroeconomic stability. Moreover, recent empirical studies on the effect of fiscal rules support the theory. Namely, their use has a positive influence on long-term economic growth and government finances. At the same time, actual experience with fiscal rules has not always been successful, therefore, the rules were exposed to frequent changes and improvements. The article discusses the evolution of the worldwide approaches to elaborate a system of fiscal rules. The main stages of their development are highlighted and the reasons for the observed modifications in fiscal rule framework are analyzed. To characterize the recent tendencies in fiscal rule design the data of international institutions, e.g. International Monetary Fund and World Bank, as well as the national legislation of the countries applying fiscal rules are used. The research shows the increasing popularity of expenditure growth rules tending to be applied in combination with debt and budget balance rules. The complication of debt rules is also registered. The other notable finding is the expanding use of the rules that incorporate an adjustment for economic cycles, which shows the governments’ endeavor to conduct countercyclical fiscal policy. In addition, the rules has become more flexible due to the introduction of escape clauses and autocorrection mechanisms. Finally, the control over compliance with the prescribed limits has become more stringent.