Fiscal Rules in Times of Crisis

Mahama Samir Bandaogo

No 150920, Research and Policy Briefs from The World Bank

Abstract: As governments around the world struggle to piece together the most effective fiscal response to counter the economic and social impact of the COVID-19 outbreak, some are facing constraints imposed by fiscal rules enacted in the past to ensure fiscal discipline. The outbreak has revealedthe weaknesses and inappropriateness of many existing fiscal rules, and authorities should take the opportunity to strengthen their fiscal rules by adopting features that make them more flexible, operational, and enforceable. Research shows that the de facto strength and credibility of the fiscal rule is what matters for fiscal discipline, not the mere de jure existence of one. As important as it is that fiscal rules include contingencies to accommodate large and effective fiscal responses to severe and unprecedented crises, it is also as important that fiscal rules provide clear guidance for building up savings in times of positive shocks.

Keywords: Macroeconomics and Economic Growth; Economic Policy; Institutions and Governance; Public Finance Decentralization and Poverty Reduction; Economic Adjustment and Lending; Public Sector Economics; Macro-Fiscal Policy; Fiscal&Monetary Policy; Public Health Promotion; Health Care Services Industry (search for similar items in EconPapers)
Date: 2020-07-16
New Economics Papers: this item is included in nep-mac
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Working Paper: Fiscal Rules in Times of Crisis (2020)
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