NATIONAL NUMERICAL FISCAL RULES FOR SOUND PUBLIC
FINANCES
European CommissionPaper completed: Spring 2006Summary
The economic literature has provided abundant analysis on how taxes, government expenditures and
budget balances should be set over the business cycle for fiscal policy to be considered optimal and
sustainable. However, experience has shown that such policies were in practice not always pursued by
policymakers. Some of the most evident signs have been the tendency to conduct pro-cyclical fiscal
policies and the large increase of debt ratios in a number of developed economies. The debate on the
ways to favour sound fiscal policies has focused on the need to rebalance the incentives of policy-makers
or impose constraints on the conduct of fiscal policy via the introduction of adequate fiscal rules and
institutions.^1
At EU level, the Maastricht Treaty and the Stability and Growth Pact (SGP) impose budgetary
obligations on Member States. In order to ensure the respect of objectives, both of them also stress the
importance of national rules and institutions for budgetary discipline. In particular, the report on the SGP
reform endorsed by the European Council on 22 March 2005 states that national budgetary rules should
be complementary to the Member States’ commitments under the Stability and Growth Pact and that
national institutions could play a more prominent role in budgetary surveillance to strengthen national
ownership, enhance enforcement through national public opinion and complement the economic and
policy analysis at EU level. The importance attached to national fiscal rules and institutions in the
reformed SGP reflects the consensus among Member States that appropriate national fiscal rules and
institutions could provide the basis for sound and sustainable budgetary developments and contribute to
the respect of the objectives of the EU fiscal framework.
This chapter focuses on national numerical fiscal rules. It exploits the results of surveys which review the
rules in force in the 25 EU Member States and assesses whether these arrangements have an effect on
budgetary outcomes. The definition of 'fiscal rules' follows that proposed by Kopits and Symanski
(1998), i.e. a permanent constraint on fiscal policy, expressed in terms of a summary indicator of fiscal
performance. Numerical fiscal rules therefore specify numerical targets or limits for key budgetary
aggregates such as annual budget balance, expenditure, revenue, or debt. The questions related to the
desirable characteristics of the budgetary process, which have already been extensively addressed in the
literature, are outside the scope of this chapter.
The analysis of the survey on numerical fiscal rules leads to the following conclusions:
(^1) This is an exert from Chapter III of the European Commission's Public Finance Report in EMU 2006. Due to space
constraints, here we do not include the section on fiscal institutions.