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

Andrzej Torój, Joanna Bęza-Bojanowska, Rafał Chmura, Kareem Ismail, Dominika Kroschel, Waikei Lam, Agnieszka Szczypińska and Bartłomiej Wiśnicki

No 2025/238, IMF Working Papers from International Monetary Fund

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.

Keywords: Fiscal Rules; Debt Sustainability; Stabilizing Expenditure Rule; Poland; Econometric Model; IMF working papers; Poland's Stabilizing Expenditure Rule; Stabilizing Expenditure Rule in Poland; expenditure rule; NEMPF model; Fiscal stance; Public investment spending; Global (search for similar items in EconPapers)
Pages: 38
Date: 2025-11-14
New Economics Papers: this item is included in nep-eec and nep-tra
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Working Paper: The role of stabilizing expenditure rule in fostering macro-fiscal stability: simulation-based evidence from Poland (2025)
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