The Return to Fiscal Rules

Francesca Caselli, Hamid Davoodi, Carlos Goncalves, Gee Hee Hong, Andresa Lagerborg, Paulo Medas, Anh Nguyen and Jiae Yoo

No 2022/002, IMF Staff Discussion Notes from International Monetary Fund

Abstract: Governments face difficult policy trade-offs with record debt levels, tightening monetary policies, and urgent demands, including food and energy crises, the climate agenda, and population aging. Governments need to communicate fiscal plans to reduce debt sustainability risks and promote consistent macroeconomic policies. Many envisage a return to fiscal rules that had been suspended during the pandemic to strengthen credibility. This situation offers an opportunity to rethink fiscal rules and determine how governments can make fiscal policy more agile, including in responding to crises, without undermining fiscal sustainability. A risk-based medium-term fiscal framework that combines standards, rules, and strengthened institutions would strike a better balance between flexibility and credibility.

Keywords: Fiscal Rules; Public Debt Sustainability; Fiscal Credibility; Independent Fiscal Institutions; Fiscal Anchors; Fiscal Limits; debt vulnerability; debt rule; policy error; countercyclical fiscal policy; debt threshold; IMF Staff Discussion Note 2022/002; Fiscal governance; Fiscal councils; Global (search for similar items in EconPapers)
Pages: 36
Date: 2022-10-11
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Citations: View citations in EconPapers (11)

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