A New Fiscal Rule: Should Israel go Swiss?

 
Author/Editor: Debrun, Xavier ; Epstein, Natan P. ; Symansky, Steven A.
 
Publication Date: April 01, 2008
 
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
 
Summary: We propose a fiscal rule that fulfills a specific debt reduction objective while maintaining significant fiscal flexibility-two overarching concerns in Israel. Not unlike the Swiss "debt brake," the rule incorporates an error-correction mechanism (ECM) through which departure from the debt objective affects binding medium-run expenditure ceilings. Two variants of our ECM rule are shown to be superior to a comparable deficit rule in terms of attaining the debt objective and allowing for fiscal stabilization while supporting medium-term expenditure planning. Given its relative sophistication, a proper implementation of the ECM rule requires supportive fiscal institutions, including independent input and assessment.
 
Series: Working Paper No. 08/87
Subject(s): Fiscal policy | Israel | Budget deficits | Debt | Government expenditures | Economic stabilization

Author's Keyword(s): Fiscal rules | public debt | fiscal stabilization.
 
English
Publication Date: April 01, 2008
Format: Paper
Stock No: WPIEA2008087 Pages: 27
Price:
US$18.00 (Academic Rate:
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