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Are fiscal rules an effective instrument in consolidating public finances? Conclusions from the economic crisis

Joanna Dzialo ()
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Joanna Dzialo: University of Lodz

Ekonomia i Prawo, 2016, vol. 15, issue 1, 59-71

Abstract: The paper aims to assess the role of fiscal rules in the process of consolidating public finances and maintaining macroeconomic stability in the EU Member States in the period of the economic crisis. The paper puts forward the thesis that fiscal rules were not an effective instrument for ensuring fiscal discipline in times of crisis. It will present the most important issues of the process of evolution of the rules during the crisis. A review and an analysis of legislation and literature on reforms implemented in the area of fiscal rules, confirms this thesis. The paper points to the need to create such fiscal rules that could contribute not only to fiscal stability but also to macroeconomic stability of the economy and concludes with recommendations for the creation of effective fiscal rules and their desirable features. The rules should be based on the structural balance or the over the cycle balance (but, in order for such rules to be effective, the structural deficit should be relatively low). Effective enforcement of the rules is necessary as well as a strong legal basis for the rules. However, one may remember that the efficiency of the rules is also determined by causes and the scope of fiscal problems in individual countries. The rules alone are not sufficient to overcome the strong systemic and structural burdens placed on economies. In such a situation, a better solution is to develop a long-term strategy for reducing deficit and debt levels, incorporating fiscal rules as one of its elements.

Keywords: effective fiscal rules; public finances; economic crisis; structural deficit; over the cycle deficit (search for similar items in EconPapers)
JEL-codes: H30 H39 H62 H63 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:cpn:umkeip:v:15:y:2016:i:1:p:59-71