DESIGN CHOICES FOR FISCAL POLICY RULES
Barry Anderson and Joseph J. Minarik (OECD)∗Paper completed: 2006Fiscal deficits have reclaimed their place as a pressing public policy issue around the world, as the brief
respite of smaller deficits and even budget surpluses in the late 1990s has come to an abrupt end. The
swing back toward large deficits is somewhat concentrated in the developed world’s largest economies,
with Germany, the United Kingdom and the United States all moving from surplus five years ago to
deficits in excess of 3% of GDP. France’s deficit has swelled from well under 2% of GDP to almost 4%
in 2004; Japan’s budget gained ground in the 1990s from its larger deficit, but has lost that ground again.
The smaller OECD countries, taken as a group, have also seen a budget deterioration, but of smaller
magnitude (see Figure 1).
Figure 1 – General government deficit for OECD countries, 1990-2004-10-8-6-4-20246199019911992199319941995199619971998199920002001200220032004
YearSurplus (+) or deficit (-), percentage of GDPUnited States
United Kingdom
France
Germany
Japan
OtherSource: OECD, OECD Factbook 2006: Economic, Environmental and Social Statistics, March 2006.Large sovereign credit demands on the part of the world’s major developed countries are potentially
destabilising, both domestically and in the global financial markets. To the extent that those demands are
met by transnational borrowing, they could eventually and suddenly cause substantial drops in debtor
country currency values, which could in turn increase domestic interest rates and raise prices of imports,
∗ “Design Choices for Fiscal Policy Rules,” first appeared in OECD Journal on Budgeting: Volume 5 Issue 4 © OECD- This article is reprinted by permission of the OECD. Barry Anderson is Head of the Budgeting and Public
Expenditures Division, Public Governance and Territorial Development Directorate, OECD. Joseph J. Minarik is Senior
Vice President and Director of Research, The Committee for Economic Development, United States.