Returning to the Golden Rule of Balanced Budgets: The Institutional and Political Economy of Restricting Public Deficits and Debt

Bernard Dafflon
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Bernard Dafflon: University of Fribourg, Switzerland

No 39, IMFG Papers from University of Toronto, Institute on Municipal Finance and Governance

Abstract: In the aftermath of the 2008 financial crisis, both politicians and public finance economists focused their attention on ways to control public budget deficits and debt. Around the world, detailed and precise regulations affected how governments could deal with public deficit and debt. The “golden rule” of public finance states that governments should borrow only to invest and not to fund current spending, and that the current budget must always balance or show a surplus. Yet implementing the “golden rule” is not a simple question of setting limits to deficits and debt. Using the case of Switzerland, this paper presents the political and institutional economics of budget constraints and develops recommendations for budget management at the subnational government level. How do we balance the needs of current expenditures with intergenerational equity? Does fiscal control over deficit or debt require top-down policies from higher levels of government, or is self-imposed control reasonable?

Keywords: budget management; budget rules; debt service; public deficit; sustainable indebtedness; public borrowing; subnational government debt (search for similar items in EconPapers)
JEL-codes: H61 H62 (search for similar items in EconPapers)
Pages: 61 pages
Date: 2018-05
New Economics Papers: this item is included in nep-cdm
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:mfg:wpaper:39

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