## Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic

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### I. Introduction and Databases
- Definition and scope
  - Fiscal rules: enduring constraints on fiscal policy expressed as numerical limits on broad budget aggregates (fiscal balance, expenditures, debt).
  - Fiscal councils: technical, nonpartisan entities acting as public finance watchdogs.
- Database coverage and enhancements
  - 123 economies (fiscal rule database).
  - 54 fiscal councils (fiscal council database operational as of end-2024 on a de-jure basis).
  - Enhancements: broader country coverage (18 new additions), detailed information on compliance and escape clauses, new data on fiscal council communications.
  - Composite indices developed: a fiscal rule 'strength' index; an index measuring fiscal councils’ alignment with desirable principles.
- Key numeric facts from Introduction
  - Database coverage: 123 economies; 54 fiscal councils operational as of end-2024.
  - Two-thirds of countries have revised fiscal rules since the pandemic.
  - Eighteen new country additions to the update.

### II. Adoption Trends and Stylized Facts
- Aggregate adoption and diffusion
  - By the end of 2024, 122 economies had adopted at least one numerical fiscal rule, representing a 7 percent increase since the pandemic.
  - The number of countries with fiscal rules has more than doubled since the beginning of the century.
  - 55 countries are subject to supranational rules.
- Country composition and typical rule counts
  - Among the 122 economies with fiscal rules:
    - 67 countries have only national rules.
    - 21 have only supranational rules.
    - 34 have both national and supranational rules.
  - As of end-2024, countries have an average of 2.8 different rules.
  - The most common rule types: debt rules and budget balance rules (each adopted by over 100 countries).
  - Expenditure rules: increasing adoption since 2010.
  - Revenue rules: less commonly used.
- Common combinations
  - Most frequent combination: debt rule with budget balance rule, or with both a budget balance and an expenditure rule.
  - Seven countries have adopted all four types of fiscal rules.
  - Thirty-three countries have adopted both budget balance rules and debt rules.
- Supranational groupings (examples)
  - 27 EU member states; 6 ECCU; 8 WAEMU; 6 CEMAC; 8 East Africa Economic and Monetary Community.
- Fiscal councils
  - 54 fiscal councils as of end-2024—more than double the number in 2010.
  - Less than half of countries with fiscal rules have established a fiscal council.
  - Growth driven by emerging market economies: from 12 fiscal councils in 2014 to 21 in 2024.
  - Latin America and the Caribbean host 11 fiscal councils.
  - Fiscal councils are rare among low-income developing countries.
  - Institutional forms: parliamentary budget offices, supreme audit offices, independent entities attached to the executive, or operating outside government.
- Notable commitments outside dataset (documented in source)
  - Jamaica established a fiscal council operational in January 2025 (not in the dataset).
  - Poland has committed to establishing a fiscal council under the EU fiscal framework.
- Key numeric facts from Section II
  - 122 economies with at least one fiscal rule by end-2024; 7 percent increase since the pandemic.
  - Average number of rules per country as of end-2024: 2.8.
  - Over 100 countries have debt rules; over 100 countries have budget balance rules.
  - 55 countries subject to supranational rules.
  - Among 122 economies: 67 national only; 21 supranational only; 34 both.
  - Seven countries have all four rule types; thirty-three have both budget balance and debt rules.
  - Fiscal councils: 54 as of end-2024; emerging markets: 12 in 2014 to 21 in 2024; Latin America and Caribbean = 11 councils.

### III. Design Features, Escape Clauses, and Correction Mechanisms
- Design focus in database
  - Compliance, coverage, statutory basis, escape clauses, correction mechanisms, links between fiscal rules and MTFFs.
- Statutory basis
  - By the end of 2024, about two-thirds of countries had fiscal rules legislated (fiscal responsibility law or constitution in some cases).
  - The number of countries with formally legislated fiscal rules has more than doubled since 2000.
- Escape clauses: prevalence, procedures, triggers, horizons, accountability
  - By end-2024, more than two-thirds of fiscal rules include escape clauses—more than double the proportion in 2000.
  - Procedures to invoke vary:
    - Presidential decree (example: Azerbaijan).
    - Government invocation and parliamentary approval (examples: Grenada, Keyna, Mongolia).
    - Consideration of fiscal council opinions (examples: Ireland, Panama).
    - Supranational activation: European Commission activated the EU-wide escape clause in 2020; suspension extended in 2021-23 owing to the war in Ukraine.
  - Conditions and triggers:
    - Often specify qualitative and sometimes quantitative triggers (e.g., magnitudes of growth slowdown).
    - Triggers generally set outside direct government control and reviewed by fiscal councils.
    - Some countries do not specify timeline to return to fiscal rule limits after exiting escape clauses (example: Honduras’s rule requires deficits to be reduced by at least 0.5 percentage points of GDP annually until reaching 1 percent of GDP, but does not impose a time frame).
  - Activation horizon and accountability:
    - Some specify horizons: 1 year (Austria) and 2 years (Colombia).
    - Among clauses that specify a horizon, the average duration increased from an average of 1 year in 2000 to 1.7 years in 2024.
    - Accountability mechanisms are often lacking; many clauses do not require governments to publish plans to return to fiscal rule limits after exiting the escape clause.
  - Activation statistics and experience (2010–2024):
    - 50 countries activated escape clauses (with 43 specifically pertaining to debt rules) or temporarily suspended fiscal rules to deliver essential fiscal support.
    - Activation of escape clauses peaked in 2020.
    - Some countries maintained active escape clauses as of 2024 (examples: Panama and Hungary).
    - Pre-pandemic activations were rare (examples: Iceland after airline bankruptcy, extended through 2025 because of the pandemic; The Bahamas in 2019 owing to hurricane Dorian).
    - More recent activations include Grenada in 2024 following Hurricane Beryl.
- Correction mechanisms: purpose and prevalence
  - Purpose: specify fiscal actions to be undertaken when rules are breached to establish a credible path to compliance.
  - Prevalence by 2024:
    - Around 40 percent of countries with fiscal rules implemented some form of correction mechanism—up from 4 percent in 2000.
    - By country group: emerging markets 30 percent; low-income developing economies 10 percent.
  - Activation and types:
    - Activated when escape clauses expire or when deviations occur due to noncompliance.
    - Can include additional reporting requirements and adjustment plans with specific revenue and expenditure measures.
    - Examples of pre-ex ante triggers: Angola and Brazil.
    - Examples relying on ex-post triggers: Costa Rica and Switzerland.
  - Required corrective actions: legislatively specified magnitudes in some countries; in others require submission of adjustment plans for informational or parliamentary approval.
  - Pre-specified correction mechanism examples: Costa Rica, the Czech Republic, the Slovak Republic.
  - Empirical evidence:
    - Synthetic control study finds adopting fiscal rules with pre-specified corrective mechanisms can help reduce sovereign spreads by about 10 percent (on average, 30 basis points) after six months, and by more than 25 percent (on average, 75 basis points) after one year compared to the control group (Acalin et al. 2025).
  - Design principles for effective correction mechanisms:
    - Pre-specified conditions (e.g., triggers when debt exceeds thresholds).
    - Prescribe actions that minimize procyclical spending cuts; align pace of fiscal adjustment with sovereign risk.
    - Clear procedures for remedial actions and robust reporting requirements (e.g., corrective plans regularly updated in MTFF reports and submitted to parliament).
- Monitoring and MTFF linkages
  - Monitoring: as of end-2024, less than 40 percent of countries with fiscal rules had established fiscal councils to monitor implementation.
  - MTFFs:
    - Two-thirds of countries with fiscal rules publish MTFF reports.
    - Almost half of those publish MTFFs prior to the budget.
    - More than half of those include explicit ceilings.
    - Half of countries with aggregate multiyear expenditure ceilings also apply these limits at ministry or budget line item level.
    - MTFFs are most frequently published in Europe.
  - Effectiveness condition: MTFFs should be published ahead of budget preparation to establish aggregate ceilings as the budget envelope.

### IV. Strength and Fiscal Council Indices, Measurement, and Validation
- Fiscal rule strength index
  - Estimated index highly correlated with the European Commission index for EU member states: correlation coefficient of 0.8.
  - Trends (1990–2024):
    - Strength has generally improved over time across income groups.
    - Notable rise after the global financial crisis.
    - Index highest among advanced countries; steady rise for emerging market and low-income developing countries.
    - Distribution shifted upward from 2010–19 to 2024, with widened variability.
  - Component cumulative standardized-score changes (time labels and values preserved as presented):
    - Time series labels: 2000, 2005, 2010, 2015, 2020, 2024.
    - Values shown above bars in Figure 17: 0.32; 0.56; 0.64; 1.23; 1.47; 1.58.
  - Summary statistics (Table 2, preserved exactly as presented):
    - Advanced Economies
      - 2012 Mean: 1.24
      - 2024 Mean: 1.86
      - 2012 St. Dev.: 1.31
      - 2024 St. Dev.: 1.47
    - Emerging Markets
      - 2012 Mean: 0.04
      - 2024 Mean: 0.83
      - 2012 St. Dev.: 0.93
      - 2024 St. Dev.: 1.16
    - Low-income Countries
      - 2012 Mean: -0.190.33
      - 2024 Mean: (value presented as) 
      - 2012 St. Dev.: 0.5 0.72
    - Note: table entries for low-income countries appear in-source with concatenated values; preserved exactly as in the original.
- Fiscal council index: construction and scoring
  - Overall index maximum: 3 (sum of three subindices: Task and Instruments I.1; Independence and Accountability I.2; Communications I.3).
  - Subcomponents and scoring rules outlined precisely in source (I.1a–I.3d).
  - Index calculated for over 50 countries with fiscal councils as of end-2024; country aggregate = maximum among councils if multiple exist.
- Validation and correlations
  - Fiscal council strength index positively correlated with fiscal rule strength index:
    - Correlation coefficient: 0.55 (statistically significant) when measuring 2024 councils relative to the average fiscal rule strength indices between 1990 and 2024.
    - Correlation stronger for emerging market and developing economies: 0.62.

### V. Compliance, Deviations, Persistence, and Econometric Evidence
- Measurement challenges for compliance
  - Differences in coverage and definitions of debt and deficit across countries.
  - Structural balance rules vary in adjustment methods (statistical filtering vs. expert panels).
  - Rules binding only at distant horizons; escape clauses and temporary suspensions complicate deviation measures.
  - Compliance includes procedural adherence (disclosures, adjustment measures, publication of MTFFs).
- Aggregate compliance patterns (2004–2024)
  - Even before the pandemic (2009–2019), compliance was weak:
    - about 60 percent of advanced economies did not comply with debt rules.
    - roughly 40 percent of emerging markets and developing economies did not comply with debt rules.
    - around 20 percent of advanced economies failed to meet deficit limits.
    - 40 percent of emerging market economies failed to meet deficit limits.
- Deviations and pandemic impact
  - Historical prevalence (2004–2024):
    - On average, countries exceeded deficit limits 47 percent of the time and debt limits 44 percent of the time.
    - Prior to the pandemic, debt surpassed fiscal rule limits in more than half of the countries, especially in advanced economies.
  - Pandemic (2020–2021) effects:
    - In 2020, over 80 percent of countries with budget balance rules saw deficits exceed prescribed limits; many invoked escape clauses.
    - The median fiscal balance was, on average, 4 percentage points of GDP weaker than fiscal rule limits in 2020.
    - More than half of countries with debt rules had debt levels exceeding debt limits or anchor targets.
    - Median positive deviation in 2020–2021:
      - Advanced economies: 48 percentage points of GDP.
      - Emerging market and developing economies: 23 percentage points of GDP.
    - Only a handful of countries (examples: Denmark and Estonia) remained below fiscal rule limits during this period.
- Medium-term persistence and projections
  - Five years after the pandemic:
    - Fiscal deficits continued to exceed fiscal rule limits by a median of 2.0–2.5 percentage points of GDP for approximately 40 percent of advanced economies and 60 percent of emerging market and developing economies.
    - Among countries exceeding rule limits in 2024:
      - About half are projected to continue running deficits above those limits until at least 2027.
      - Debt levels are expected to remain well above prescribed limits over the next two years, with only a gradual decline anticipated after 2027.
- Econometric evidence on persistence (panel regressions; Arellano-Bond estimator and robustness checks)
  - Estimated autocorrelation (persistence) coefficients (interpreted as reported):
    - Budget balance rules:
      - Countries exceeding the fiscal rule limit: 0.58.
      - Countries not exceeding the limit: 0.79.
      - Interpretation: a country exceeding the deficit limit by a typical deviation of about 1.9 percentage points of GDP would take about four to five years to converge close to its average deviation level.
    - Debt rules:
      - Countries exceeding the debt rule limits: 0.87.
      - Countries staying within the debt rule: 0.93.
      - Interpretation: public debt deviations are even more persistent; a country with a typical deviation from debt rule limits does not converge to its mean deviation even after ten years.
  - Regression details and selected coefficient estimates (preserved exactly as presented):
    - Budget Balance Rule Deviations (panel 1)
      - Lag BBR_deviation: 0.791*** (0.055); 0.759*** (0.052); 0.811*** (0.063); 0.691*** (0.051); 0.804*** (0.061)
      - Lag BBR_deviation (exceeding): -0.209*** (0.074); -0.147* (0.080); -0.290*** (0.078); 0.006 (0.067); -0.325*** (0.116)
      - Lag DR_deviation (not exceeding): -0.031** (0.015); -0.010 (0.014); -0.043** (0.017); -0.024 (0.015); -0.034** (0.016)
      - Lag DR_deviation (exceeding): -0.012* (0.007); -0.015*** (0.006); -0.002 (0.011); -0.006 (0.006); -0.015** (0.007)
      - Real GDP growth: -0.298***; -0.125**; -0.316***; -0.321; -0.300*** (standard errors provided in table)
      - Lag BBR_deviation (exceeding) * output gap < -2%: 0.178** (0.089)
    - Debt Rule Deviations (panel 2)
      - Lag DR_deviation: 0.928*** (0.025); 0.931*** (0.029); 0.922*** (0.031); 0.919*** (0.068); 0.939*** (0.025)
      - Lag DR_deviation (exceeding): -0.056 (0.036); -0.076** (0.036); -0.082* (0.043); -0.000 (0.071); -0.105** (0.042)
      - Lag BBR_deviation (not exceeding): 0.339*** (0.104); 0.229** (0.112); 0.358*** (0.122); 0.245* (0.129); 0.370*** (0.093)
      - Lag BBR_deviation (exceeding): 0.471** (0.186); 0.455** (0.209); 0.385* (0.206); 0.486*** (0.152); 0.438** (0.191)
      - Real GDP growth: -1.027***; -0.800***; -1.180***; -2.036**; -1.036*** (standard errors provided in table)
      - Lag DR_deviation (exceeding) * output gap < -2%: 0.043 (0.028)
  - Robustness checks included year fixed effects, inclusion of small countries, instrumenting real GDP growth, and interactions with recessions (output gap < -2 percent).
  - Key regression findings summarized:
    - Budget balance rule deviations: results similar across specifications; deviations significantly more persistent amid big recessions.
    - Debt rule deviations: persistence high; difference in persistence between exceeders and non-exceeders sensitive to specification; persistence higher in recessions though coefficients smaller and not always statistically significant.

### VI. Institutional Features, Mandates, Communications, and Capacity of Fiscal Councils
- Typical mandates and functions
  - Assess macro-fiscal forecasts; evaluate debt sustainability and risks; monitor fiscal rule implementation; analyze costs of government measures.
  - Some fiscal councils prepare independent forecasts; only a few require these forecasts to be used in government budgets.
  - Many provide ex-ante and ex-post budget analyses; influence can be limited when councils are limited to consultation or "comply or explain" arrangements.
- Quantitative mandate indicators (percent of fiscal councils, as presented)
  - Forecast preparation: 31
  - Forecast assessment: 81
  - Policy recommendations: 74
  - Long-term sustainability: 63
  - Costing of measures: 39
  - Monitoring of fiscal rules: 78
- Communication and visibility
  - In 2024, more than half of fiscal councils in advanced economies published their own communication strategies.
  - About a third of fiscal councils in emerging markets and developing economies published communication strategies.
  - Most councils maintain public visibility via websites, publications, parliamentary hearings, and media engagement; outreach less frequent in emerging markets and developing economies.
  - Most publish analyses on macro-fiscal forecasts and compliance; about 10 percent include debt sustainability analysis or cost estimates of policies in their reports.
- Operational independence and capacity
  - De jure operational independence often present: statutory autonomy, multi-year budget safeguards, timely access to information, transparent appointment procedures, flexibility in staffing.
  - Practical independence can be limited by insufficient resource protections relative to mandates.
  - Typical composition: around six members; contract lengths average between four and nine years; most institutions allow reappointment; about half permit recruitment of noncitizens.
- Fiscal council index findings
  - Large cross-country variation; higher average scores in advanced economies, particularly in Europe.
  - Communications subindex: advanced economies score higher across communications categories.
  - Positive and significant correlation of fiscal council index with fiscal rule strength index: correlation coefficient 0.55 overall; 0.62 for emerging market and developing economies.

### VII. Policy-Relevant Conclusions and Recommendations (as presented)
- Strengthening institutional design and implementation
  - Robust fiscal rules and effective fiscal councils are important for guiding fiscal frameworks back to sustainable paths given large, persistent deviations.
  - Improve operational independence, resource protections, and communication strategies to increase councils’ influence.
- Role of communication and transparency
  - Published communication strategies (I.3a = 2) and comprehensive reporting (forecasts, rule compliance assessment, debt sustainability analysis, costing) associate with higher communications subindex scores and are more common in advanced economies.
  - Enhancing media engagement (I.3c) and regular publications (I.3b) can strengthen councils’ public profile and potentially improve compliance and accountability.
- Managing flexibility and escape clauses
  - The increased prevalence of escape clauses and legislative backing since the pandemic improves flexibility but does not automatically yield stronger compliance.
  - Clear timelines and mechanisms for returning to compliance and stronger oversight are needed.
- Medium-term fiscal adjustment challenge
  - Given projections that about half of countries exceeding deficits in 2024 will continue to do so until at least 2027, and that debt is projected to remain above limits with gradual improvement only after 2027, sustained fiscal adjustment and strengthened institutions are required to reduce persistent deviations.

*Annex I (and main sections I–III) of IMF Working Paper: "Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic" (2025 update of IMF Fiscal Rules and Fiscal Councils databases).*

### Annex I. Fiscal Rules and Fiscal Councils Databases ....................................................................

### Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic

### I. Introduction
- Fiscal rules are defined as enduring constraints on fiscal policy, typically expressed as numerical limits on broad budget aggregates such as the fiscal balance, expenditures, and debt levels.
- Over 120 countries have adopted fiscal rules.
- Fiscal councils are technical, nonpartisan entities tasked as public finance watchdogs.
- Two-thirds of countries have revised their fiscal rules since the pandemic; in many cases revisions have not led to improved compliance.
- The analysis draws on the 2025 update of the IMF Fiscal Rules and Fiscal Councils databases covering:
  - 123 economies (fiscal rule database)
  - 54 fiscal councils (fiscal council database operational as of end-2024 on a de-jure basis)
- Databases enhancements include:
  - Broader country coverage (18 new additions)
  - Detailed information on compliance and escape clauses
  - New data on fiscal council communications
- The paper develops:
  - A 'strength' index for fiscal rules to evaluate design elements over time and across countries
  - An index measuring how fiscal councils align with desirable principles

*Key numeric facts from Introduction*
- Database coverage: 123 economies; 54 fiscal councils operational as of end-2024.
- Two-thirds of countries have revised fiscal rules since the pandemic.
- Eighteen new country additions to the update.

### II. Fiscal Rules and Fiscal Councils are on the Rise
- Adoption trends:
  - By the end of 2024, 122 economies had adopted at least one numerical fiscal rule, representing a 7 percent increase since the pandemic.
  - The number of countries with fiscal rules has more than doubled since the beginning of the century.
  - 55 countries are subject to supranational rules.
- Distribution and diffusion:
  - Advanced economies led initial adoption; recent growth mainly from emerging markets and developing economies.
  - Examples of countries introducing fiscal rules since the pandemic: Angola (2020), Democratic Republic of Congo (2023), Dominican Republic (2024), Kiribati (2022), Marshall Islands (2021), Somalia (2024), Zambia (2022).
- Country composition of rules:
  - Among the 122 economies with fiscal rules:
    - 67 countries have only national rules
    - 21 have only supranational rules
    - 34 have both national and supranational rules
- Typical rule counts and types:
  - As of end-2024, countries have an average of 2.8 different rules.
  - The most common fiscal rules are debt rules and budget balance rules, each adopted by over 100 countries.
  - Expenditure rules have been increasingly adopted since 2010.
  - Revenue rules are less commonly used.
- Combinations:
  - The most frequent combination is a debt rule together with a budget balance rule, or with both a budget balance and an expenditure rule.
  - Seven countries have adopted all four types of fiscal rules.
  - Thirty-three countries have adopted both budget balance rules and debt rules.
- Supranational rule groupings (examples):
  - 27 EU member states; 6 ECCU; 8 WAEMU; 6 CEMAC; 8 East Africa Economic and Monetary Community.
- Fiscal councils:
  - As of end-2024, there are 54 fiscal councils—more than double the number in 2010.
  - Less than half of countries with fiscal rules have established a fiscal council.
  - Growth in fiscal councils driven by emerging market economies: from 12 fiscal councils in 2014 to 21 in 2024.
  - Latin America and the Caribbean now host 11 fiscal councils.
  - Fiscal councils are rare among low-income developing countries.
  - Institutional forms include parliamentary budget offices, supreme audit offices, independent entities attached to the executive, or operating outside government.
- Notable commitments outside the dataset:
  - Jamaica established a fiscal council operational in January 2025 (not in the dataset).
  - Poland has committed to establishing a fiscal council under the EU fiscal framework.

*Key numeric facts from Section II*
- 122 economies with at least one fiscal rule by end-2024; 7 percent increase since the pandemic.
- Average number of rules per country as of end-2024: 2.8.
- Over 100 countries have debt rules; over 100 countries have budget balance rules.
- 55 countries subject to supranational rules.
- Among 122 economies: 67 national only; 21 supranational only; 34 both.
- Seven countries have all four rule types; thirty-three have both budget balance and debt rules.
- Fiscal councils: 54 as of end-2024; 12 in 2014 to 21 in 2024 for emerging markets; Latin America and Caribbean = 11 councils.

### III. Evolving Design and Institutional Features of Fiscal Rules and Fiscal Councils
A. Evolving design features of fiscal rules
- Focus areas captured in the updated database:
  - Compliance
  - Coverage
  - Statutory basis
  - Escape clauses and correction mechanisms
  - Links between fiscal rules and medium-term fiscal frameworks
- Statutory basis:
  - By the end of 2024, about two-thirds of countries had fiscal rules legislated, either within a fiscal responsibility law or, in some cases, within their constitutions.
  - The number of countries with formally legislated fiscal rules has more than doubled since 2000.
  - Trade-offs:
    - Constitutional embedding can reduce political interference but may be overly restrictive in changing macroeconomic conditions.
    - Inclusion in coalition agreements may lead to frequent revisions and weaker credibility.
- Escape clauses:
  - Over the past two decades, countries have increasingly incorporated escape clauses to introduce flexibility and enable temporary suspension of rules during exceptional circumstances (e.g., war, national emergencies, severe recessions, natural disasters).
  - This evolution supports 'second generation' fiscal rules that balance discipline with flexibility.
- Monitoring, transparency, and linkages:
  - The dataset documents whether fiscal councils monitor fiscal rules and whether countries publish medium-term fiscal frameworks (MTFFs) ahead of budget cycles.
  - Correction mechanisms are noted as a design characteristic tracked over time.

*Key numeric facts from Section III*
- By end-2024, about two-thirds of countries had legislated fiscal rules.
- The number of countries with formally legislated fiscal rules has more than doubled since 2000.

*Composite indices developed in the paper*
- A composite 'strength' index for fiscal rules assessing design elements over time and across countries.
- An index measuring fiscal councils’ alignment with desirable principles (OECD 2014, IMF 2013).

Italic source attribution:
*Annex I (and main sections I–III) of IMF Working Paper: "Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic" (2025 update of IMF Fiscal Rules and Fiscal Councils databases).*

### 1. Institution that can invoke escape clause 2. Conditions to invoke escape clause

### 1. Institution that can invoke escape clause 2. Conditions to invoke escape clause

### Overview
- Countries have increasingly implemented escape clauses to strengthen the flexibility of fiscal rules.
- By the end of 2024, more than two-thirds of fiscal rules include escape clauses, which is more than double the proportion seen in 2000.
- Examples of recent introductions or revisions: Colombia, Ecuador, and Sri Lanka.

### Procedures for invoking escape clauses
- Procedures vary by country and institutional arrangement:
  - Some require a presidential decree citing the reasons for activation (example: Azerbaijan).
  - Others are invoked by the government (finance ministry or the cabinet) and approved by parliament or congress (examples: Grenada, Keyna, Mongolia).
  - Some consider the opinions of fiscal councils when invoked (examples: Ireland, Panama).
  - Supranational rules: the European Commission activated the EU-wide escape clause in 2020; the suspension was extended in 2021-23 owing to the war in Ukraine.

### Conditions and triggers for invoking escape clauses
- Triggers often specify conditions and sometimes include quantitative triggers (for example, magnitudes of growth slowdown).
- These triggers are generally set outside the direct control of governments and are subject to review by fiscal councils to avoid risks of abuse (Gbouhoui and Medas, 2020).
- Some countries do not specify a timeline to return to fiscal rule limits after exiting escape clauses (example: Honduras’s rule requires deficits to be reduced by at least 0.5 percentage points of GDP annually until reaching 1 percent of GDP, but does not impose a time frame).

### Activation horizon and accountability
- Activation horizons vary; some specify 1 to 2 years (example: 1 year in Austria and 2 years in Colombia).
- Among clauses that specify a horizon, the average duration increased from an average of 1 year in 2000 to 1.7 years in 2024.
- Accountability mechanisms are often lacking; many clauses do not require governments to publish plans to return to fiscal rule limits after exiting the escape clause.

### Activation statistics and experience (2010–2024)
- During 2010–2024, activation of escape clauses was concentrated in periods marked by severe shocks, most notably the onset of the COVID-19 pandemic in 2020.
- 50 countries activated escape clauses (with 43 specifically pertaining to debt rules) or temporarily suspended fiscal rules to deliver essential fiscal support.
- Activation of escape clauses peaked in 2020.
- Some countries maintained active escape clauses as of 2024 (examples: Panama and Hungary).
- Only a few countries activated escape clauses prior to the pandemic (examples: Iceland after the bankruptcy of its airline, extended through 2025 because of the pandemic; The Bahamas in 2019 owing to hurricane Dorian). More recent activations include Grenada in 2024 following Hurricane Beryl.

### Correction mechanisms: purpose, prevalence, and design
- Purpose: specify fiscal actions to be undertaken when rules are breached, establishing a credible path to return to compliance.
- Prevalence:
  - Around 40 percent of countries with fiscal rules implemented some form of correction mechanism by 2024—up from 4 percent in 2000.
  - Prevalence by country group: emerging markets 30 percent; low-income developing economies 10 percent.
- Activation and types:
  - Activated when escape clauses expire or when rule deviations occur due to noncompliance.
  - Can include additional reporting requirements and adjustment plans with specific revenue and expenditure measures.
  - Some countries introduce ex-ante triggers (examples: Angola and Brazil) before rules are breached.
  - Others rely on ex-post triggers in response to actual deviations (examples: Costa Rica and Switzerland).
- Required corrective actions differ:
  - Some legislatively specify the magnitude of adjustments.
  - Others require governments to submit adjustment plans for informational purposes or parliamentary approval.
- Pre-specified correction mechanism examples: Costa Rica, the Czech Republic, the Slovak Republic.
- Empirical evidence:
  - An empirical study using a synthetic control approach finds that adopting fiscal rules with pre-specified corrective mechanisms can help reduce sovereign spreads by about 10 percent (on average, 30 basis points) after six months, and by more than 25 percent (on average, 75 basis points) after one year compared to the control group (Acalin et al. 2025).
- Design principles for effective correction mechanisms:
  - Pre-specified conditions (e.g., triggers when debt exceeds thresholds or rules are breached) provide clearer guidance for expectations.
  - Prescribe actions that minimize the risk of procyclical spending cuts; align the pace of fiscal adjustment with sovereign risk.
  - Outline clear procedures for remedial actions and establish robust reporting requirements (for example, corrective plans regularly updated in MTFF reports and submitted to parliament).

### Monitoring of fiscal rules and linkages with MTFFs
- Monitoring:
  - As of end-2024, less than 40 percent of countries with fiscal rules had established fiscal councils to monitor implementation.
- Linkages with Medium-Term Fiscal Frameworks (MTFFs):
  - MTFFs introduce a medium-term perspective to budgeting and are usually implemented in countries with numerical fiscal rules.
  - MTFFs set top-down limits on total government expenditure and guide the annual budgeting process, often for a four- to five-year period aligned with the government’s term.
  - MTFF reports typically include medium-term fiscal strategy, macro-fiscal projections, and measures to achieve fiscal rule targets; they may propose new measures in cases of past deviations or noncompliance.
  - Two-thirds of countries with fiscal rules publish MTFF reports (Figure 11).
  - Almost half of those publish MTFFs prior to the budget.
  - More than half of those include explicit ceilings.
  - MTFFs are most frequently published in Europe; some supranational rules link reporting requirements to macro-fiscal projections and fiscal strategies.
  - The database notes whether MTFF ceilings are indicative or binding; half of the countries with aggregate multiyear expenditure ceilings also apply these limits at the ministry or budget line items level.
- To be effective, MTFFs should be published ahead of budget preparation to establish aggregate ceilings as the overall budget envelope for annual budgets.
- Strengthening alignment between MTFFs, fiscal rules, and the annual budget process is essential for improving compliance.

*Source: IMF Working Paper — Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic (data and text from IMF Fiscal Rules Database: 1985–2024; Alonso et. al. 2025a; authors’ compilations).*

### 0.64 and 3.51.

### wpiea2025198-source-pdf - 0.64 and 3.51

### Fiscal rule strength index: measurement and validation
- Estimated fiscal rule strength index is highly correlated with the European Commission index for EU member states (correlation coefficient of 0.8).
- Figure 12: regression of the estimated fiscal rule strength index on the European Commission index; slope coefficient shown with ** indicating 5-percent statistical significance.
- Sources cited: Alonso et. al. 2025a; IMF Fiscal Rules Database: 1985–2024; European Commission (2024); authors’ compilations.

### Trends and distribution of the strength index (1990–2024)
- The compiled index suggests strength of fiscal rules has generally improved over time across all income groups (Figure 13).
- Notable rise after the global financial crisis as advanced countries added escape clauses and the EU strengthened monitoring of fiscal rules.
- Emerging market economies and low-income developing countries have shown a steady rise over the last two decades.
- The index is highest among advanced countries relative to emerging markets and low-income developing countries (Figure 14).
- Distribution shifts:
  - The distribution of strength indices among countries shifted upward from 2010–19 to 2024, indicating general improvement but with considerable variation.
  - Variability across countries has widened for all income groups, especially among emerging markets and developing economies.
  - Some countries have seen declines in their strength index over the past decade due to frequent amendments and increasing complexity of fiscal rules.
- Association with rule compliance: countries with higher strength index scores for budget balance rules tend to have smaller deviations from fiscal rule limits (consistent with Larch and Santacroce 2020).

### Tradeoffs among fiscal-rule dimensions and component changes
- Tradeoffs noted: increases in flexibility, monitoring, and enforcement have often coincided with greater complexity (measured by the number of rules relative to the income-group maximum) (Figure 15).
- Component changes over time (cumulative standardized-score changes; values shown above bars in Figure 17):
  - 0.32
  - 0.56
  - 0.64
  - 1.23
  - 1.47
  - 1.58
  - Time series labels: 2000, 2005, 2010, 2015, 2020, 2024
  - Components identified: Legal; Monitoring; Enforcement and Correction; Flexibility and Resilience to Shocks.
- Note on scoring: indicators scaled between 0 and 1; simplicity measured as inverse of number of rules; subindices mapping described in Figure 15 notes.

### Summary statistics (Table 2)
- Table 2. Summary Statistics of Fiscal Rule Strength Index
  - Advanced Economies
    - 2012 Mean: 1.24
    - 2024 Mean: 1.86
    - 2012 St. Dev.: 1.31
    - 2024 St. Dev.: 1.47
  - Emerging Markets
    - 2012 Mean: 0.04
    - 2024 Mean: 0.83
    - 2012 St. Dev.: 0.93
    - 2024 St. Dev.: 1.16
  - Low-income Countries
    - 2012 Mean: -0.190.33
    - 2024 Mean: (value presented as) 
    - 2012 St. Dev.: 0.5 0.72
- Sources: Alonso et. al. 2025a; IMF Fiscal Rules Database: 1985–2024; authors’ compilations.
- Note: (as presented) table entries for low-income countries appear in-source with concatenated values; preserved exactly as in the original.

### Compliance with fiscal rules: measurement challenges and empirical patterns
- Complexity of assessing compliance:
  - Differences in coverage and definitions of debt and deficit across countries (examples in source: Costa Rica, Brazil, Poland).
  - Structural balance rules vary in adjustment methods (statistical filtering vs. expert panels; examples: Colombia, Chile).
  - Some rules bind only at distant horizons (examples: ECCU, United Kingdom).
  - Escape clauses and temporary suspensions (common during the pandemic) make simple deviation measures insufficient.
  - Compliance can include procedural adherence (disclosures, adjustment measures, publication of medium-term fiscal frameworks).
- Complementary compliance indicators used:
  - Direct indicators of compliance as assessed by country authorities or IMF country teams.
  - Deviations of fiscal outcomes from rule limits (countries with positive deviations in debt and deficit limits considered noncompliant; cases with escape clauses or suspensions not counted as violations).
  - Cross-checks with existing literature (e.g., Ardanaz et al., 2024; Larch et al., 2023).
- Empirical findings (2004–2024; Figure 18):
  - Even before the pandemic (2009–2019), compliance was weak:
    - about 60 percent of advanced economies did not comply with debt rules.
    - roughly 40 percent of emerging markets and developing economies did not comply with debt rules.
    - around 20 percent of advanced economies failed to meet deficit limits.
    - 40 percent of emerging market economies failed to meet deficit limits.
  - During severe shocks, magnitude and proportion of deviations from rule limits increased.
  - Even under normal conditions, some countries consistently exceeded fiscal rule limits due to multiple exclusions, limited oversight, or absence of necessary fiscal adjustments.
- Regional compliance (Figure 19):
  - Measures broadly consistent after adjusting for temporary suspensions in 2020–21.
  - For debt rules, medium-term anchors can lead to higher measured compliance compared with raw deviation measures.
  - Database indicators and deviation-based measures align broadly with literature-based compliance measures.

### Revisions of fiscal rules after the pandemic (2020–2024)
- More than two-thirds of countries with fiscal rules introduced at least one change between 2020 and 2024 (Figure 20).
- Types of revisions and country examples:
  - Loosening of targets: nearly half of countries loosened targets (examples in source: Panama, Papua New Guinea).
  - New debt rules: Chile and Colombia.
  - First fiscal responsibility law enacted: Dominican Republic.
  - Compliance by exclusions: Costa Rica.
  - Extended timelines to achieve fiscal anchors: Eastern Caribbean Currency Union (ECCU).
  - Shift toward fiscal plans with multiyear commitments rather than strict numerical targets: example given India.
  - EU overhaul (2024): allows differentiated expenditure paths and requires four- or seven-year adjustment plans to ensure a high likelihood of restoring or maintaining fiscal sustainability.
- Supranational revisions (Table 1 highlights):
  - European Union (EU):
    - Activated escape clauses during 2020-23.
    - Revamped economic governance reforms in 2024; country-specific expenditure paths; safeguards for debt sustainability and deficit resilience; four- or seven-year adjustment plans.
  - Eastern Caribbean Currency Union (ECCU):
    - Extended horizon to converge to debt limit of 60 percent of GDP by five years to 2035.
  - Central Africa Economic and Monetary Cooperation (CEMAC):
    - Pending adoption of a sanctions mechanism for breaches of regional surveillance rules.
  - West African Economic and Monetary Union (WAEMU):
    - Supranational rules suspended since April 2020 under the Convergence Pact; Pact has not been reinstated formally.
  - East Africa Monetary Union (EAMU/EAC):
    - Fiscal rules maintained; Democratic Republic of Congo and Somalia became members in 2022 and 2024, respectively.

### Institutional features and mandates of fiscal councils
- Typical mandates of fiscal councils:
  - Assessing macro-fiscal forecasts.
  - Evaluating debt sustainability and risks to public finances.
  - Monitoring implementation of fiscal rules.
  - Analyzing costs of government fiscal measures.
  - Some prepare independent forecasts; only a few require these forecasts to be used in government budgets.
- Functional roles:
  - Provide ex-ante and ex-post budget analyses; many conduct ex-post analysis to assess fiscal performance and compliance.
  - May have limited impact during budget process when limited to consultation or "comply or explain" arrangements (examples: Grenada, Spain, United Kingdom).
- Quantitative indicators of mandates (Figure 21 percentages as shown):
  - Forecast preparation: 31
  - Forecast assessment: 81
  - Policy recommendations: 74
  - Long-term sustainability: 63
  - Costing of measures: 39
  - Monitoring of fiscal rules: 78
  - Note: numeric values above correspond to percent of total fiscal councils for each mandate as presented in the source.
- Communication and visibility (Figure 22 findings):
  - In 2024, more than half of fiscal councils in advanced economies published their own communication strategies.
  - About a third of fiscal councils in emerging markets and developing economies published communication strategies.
  - Most fiscal councils maintain public visibility via official websites, publications, parliamentary hearings, and media engagement; outreach is typically less frequent in emerging markets and developing economies.
  - Most publish analyses on macro-fiscal forecasts and compliance with fiscal rules; about 10 percent include debt sustainability analysis or cost estimates of policies in their reports.
  - Differences reflect institutional capacity and operational independence.

*Sources: Alonso et. al. 2025a; Alonso et. al. 2025b; IMF Fiscal Rules Database: 1985–2024; IMF Fiscal Councils Database: 2024 Update; European Commission (2024); authors’ compilations.*

### 1. Presence of communication strategy 2. Elements of communications in fiscal councils

### 1. Presence of communication strategy 2. Elements of communications in fiscal councils

### Operational independence and capacity of fiscal councils
- Fiscal councils typically possess de jure operational independence, including statutory autonomy, multi-year budget safeguards, timely and cost-free access to information, transparent appointment procedures for council members, and flexibility in recruiting staff and setting analytical priorities.
- In practice, independence can be limited by insufficient resource protections that do not match the scope of mandates, which can undermine capacity to provide effective and independent fiscal oversight.
- Typical institutional characteristics:
  - Councils often operate in a small group of expertise, typically composed of around six members.
  - Contract lengths average between four and nine years.
  - Most institutions allow reappointment and only about half permit the recruitment of noncitizens.
  - Staff composition: primarily from civil service, policy experts, and academics working part time or full time.

### Fiscal council index: construction and measurement
- The fiscal council index measures three criteria, each with a subindex ranging between 0 and 1; the overall index is the sum of the three subindices and has a maximum score of 3.
  - Task and Instruments (I.1)
    - Public relations (I.1a): equals 1 if the council prepares public reports on its activities; equals 2 if reports have high media impact; 0 otherwise.
    - Budget process (I.1b): equals 1 if the council produces a forecast that is adopted in the budget process; equals 2 if either the forecasts are binding, there is a comply or explain mechanism, there are formal consultation or hearings, or the council can stall the budget process; equals 0 if the council does not produce a forecast.
  - Independence and Accountability (I.2)
    - Legal Independence (I.2a): council’s independence from political interference is guaranteed by law or treaty (0/1).
    - Operational Independence – management (I.2b): equals 1 if there are safeguards on the council’s budget or multi-annual funding commitments; equals 2 if both are true; equals 0 otherwise.
    - Operational Independence – personnel (I.2c): equals 1 if the council can select its own staff or if staff is commensurate to tasks; equals 2 if both are true; equals 0 otherwise.
    - Operational Independence – Access to information (I.2d): council is guaranteed full access to information in timely manner by legislation (0/1).
    - Operational Independence – Forecasts (I.2e): council prepares or assesses macro forecasts used for budget (0/1).
  - Communications (I.3)
    - Communication policy/strategy (I.3a): equals 2 if the strategy is published; equals 1 if the strategy is internal; equals 0 if there is no strategy.
    - Publications (I.3b): council or its staff publishes reports or press releases (0/1).
    - Media coverage (I.3c): council leadership holds media events or present at parliamentary hearings (0/1).
    - Elements of reports (I.3d): reports contain forecasts, assessment of rule compliance, debt sustainability analysis, costing of fiscal policies (each adds 1).

- The index is calculated for over 50 countries with fiscal councils as of end-2024. In countries with multiple fiscal councils, the aggregate country index is shown as the maximum among different councils in that country.

### Key empirical findings on scores and correlations
- Cross-country variation:
  - The calculated index shows a large variation across fiscal councils when benchmarked against desirable principles, with higher average scores in advanced economies, particularly in Europe.
  - Fiscal councils in advanced economies tend to have a higher score across all dimensions than emerging markets and developing economies.
  - Variation is wider in communication channels and influence and in operational independence and accountability.
- Communications subindex:
  - Advanced economies tend to score higher on average in all communications sub-categories: likelihood of having a communication strategy, publishing reports or press releases, holding media events or presenting at parliamentary hearings, and producing more comprehensive reports (macro-fiscal forecasts, assessment of rule implementation, debt sustainability analysis, costing of fiscal policies).
- Correlation with fiscal rules strength:
  - The fiscal council strength index shows a positive and significant correlation with the strength index on fiscal rules across countries.
  - Correlation coefficient: 0.55 (statistically significant) when measuring 2024 data on fiscal councils relative to the average of full sample fiscal rules strength indices between 1990 and 2024.
  - The positive correlation remains if the correlation coefficient is calculated only using 2024 data.
  - Correlation is stronger for emerging market and developing economies, with a significant correlation of 0.62.

### Deviations from fiscal rule limits: prevalence, magnitude, and persistence
- Definitions and measurement:
  - Deviations from fiscal rule limits are computed as the difference between fiscal aggregates (debt or deficits as share of GDP) and rule-prescribed limits.
  - Positive deviations mean deficits or debt levels are higher than limits prescribed in fiscal rules.
  - A positive deviation does not necessarily indicate noncompliance because escape clauses or future-binding targets can apply.
- Historical prevalence (2004–2024):
  - On average, countries exceeded deficit limits 47 percent of the time and debt limits 44 percent of the time during 2004–2024.
  - Prior to the pandemic, debt surpassed fiscal rule limits in more than half of the countries, especially in advanced economies.
- Pandemic impact (2020–2021):
  - In 2020, over 80 percent of countries with budget balance rules saw their deficits exceed prescribed limits, with many invoking escape clauses.
  - The median fiscal balance was, on average, 4 percentage points of GDP weaker than fiscal rule limits in 2020.
  - More than half of countries with debt rules had debt levels exceeding debt limits or anchor targets.
  - Median positive deviation in 2020–2021:
    - Advanced economies: 48 percentage points of GDP.
    - Emerging market and developing economies: 23 percentage points of GDP.
  - Only a handful of countries, such as Denmark and Estonia, remained below fiscal rule limits during this period.
- Medium-term outlook and recent persistence:
  - Five years after the pandemic, fiscal deficits continued to exceed fiscal rule limits by a median of 2.0–2.5 percentage points of GDP for approximately 40 percent of advanced economies and 60 percent of emerging market and developing economies.
  - Among countries exceeding rule limits in 2024:
    - About half are projected to continue running deficits above those limits until at least 2027.
    - Debt levels are expected to remain well above prescribed limits over the next two years, with only a gradual decline anticipated after 2027.
- Econometric evidence on persistence:
  - Panel regression framework allows different persistence coefficients depending on whether a country exceeded the rule limit in the previous period and includes cross-interaction terms and controls for real GDP growth.
  - Estimated autocorrelation coefficients (persistence) for deviations:
    - Budget balance rules:
      - Countries exceeding the fiscal rule limit: 0.58.
      - Countries not exceeding the limit: 0.79.
      - Interpretation: a country exceeding the deficit limit by a typical deviation of about 1.9 percentage points of GDP would take about four to five years to converge close to its average deviation level.
      - Countries that exceed the limits tend to return to their average deviations sooner than those that remain within the fiscal rule limits.
    - Debt rules:
      - Countries exceeding the debt rule limits: 0.87.
      - Countries staying within the debt rule: 0.93.
      - Interpretation: public debt deviations are even more persistent; a country with a typical deviation from debt rule limits does not converge to its mean deviation even after ten years.
- Implications:
  - Current deviations of deficits and debt from fiscal rule limits are large, widespread, and persistent.
  - Elevated deficits and debt relative to historical standards across many countries pose significant challenges for returning to compliance with fiscal rule limits and guiding fiscal policy adjustments.

### Policy-relevant conclusions and implications
- Strengthening institutional design and implementation:
  - Robust fiscal rules and effective fiscal councils are important for guiding fiscal frameworks back to sustainable paths given the large, persistent deviations documented.
  - Improvements in operational independence, resource protections, and communication strategies (including published communication strategies) can increase councils’ influence and oversight capacity.
- Role of communication and transparency:
  - Published communication strategies (I.3a = 2) and comprehensive reporting (including forecasts, rule compliance assessment, debt sustainability analysis, and costing of fiscal policies) are associated with higher communications subindex scores and are more common in advanced economies.
  - Enhancing media engagement (I.3c) and regular publications (I.3b) can strengthen councils’ public profile and potentially improve compliance and accountability.
- Managing flexibility and escape clauses:
  - The increased prevalence of escape clauses and legislative backing since the pandemic improves flexibility but does not automatically yield stronger compliance; clear timelines and mechanisms for returning to compliance and stronger oversight are needed.
- Medium-term fiscal adjustment challenge:
  - Given projections that about half of countries exceeding deficits in 2024 will continue to do so until at least 2027, and that debt is projected to remain above limits with gradual improvement only after 2027, sustained fiscal adjustment and strengthened institutions will be required to reduce persistent deviations.

*Sources: Alonso et. al. 2025b; IMF Fiscal Councils Database: 2024 Update; Alonso et. al. 2025a; IMF Fiscal Rules Database: 1985–2024; IMF World Economic Outlook database; authors’ compilations.*

### Annex I. Fiscal Rules and Fiscal Councils Databases

### Annex I. Fiscal Rules and Fiscal Councils Databases

### A. Definition and inclusion criteria for fiscal rules
- A fiscal rule is a long-lasting constraint on fiscal policy through numerical limits on budgetary aggregates.
- Inclusion principles for the dataset:
  - Only fiscal rules with targets fixed in legislation and fiscal arrangements for which the targets can only be revised on a low-frequency basis (e.g., as part of the electoral cycle) and binding for at least three years are considered as fiscal rules.
  - Medium-term budgetary frameworks or expenditure ceilings that provide multi-year projections but can be changed annually are not considered to be fiscal rules.
  - Only rules that set numerical targets on aggregates that capture a large share of public finances and at a minimum cover the central government level are included; fiscal rules for subnational governments or fiscal sub-aggregates are excluded.
  - The dataset focuses on de jure arrangements and not on adherence in practice.

- Temporal coverage note:
  - Unless indicated otherwise, the indicators on fiscal rules included in this paper cover only those rules that took effect by end-December 2024 or for which a specific transition regime was in place at that time.
  - Fiscal rules that were adopted, but not yet implemented, are described in the technical manual but not included in the charts and tables.

### B. Types of fiscal rules (taxonomy)
- The dataset distinguishes four main types of fiscal rules, applicable to the central or general government or the wider public sector:
  1. Debt rules (DR)
     - Set an explicit anchor or ceiling for public debt, often expressed in percentage of GDP.
     - Objective: achieve convergence to a sustainable debt target; relatively easy to communicate.
     - Limitations: debt levels influenced by factors outside government control (e.g., foreign exchange rates and interest rates); do not provide short-term guidance.
  2. Budget balance rules (BBR)
     - Constrain the budget aggregate that primarily influences the debt ratio and are largely under policymakers’ control.
     - Can be specified as limits on: overall balance, primary balance, or structural or cyclically adjusted balance.
     - Structural/cyclically adjusted balances provide stabilization but are difficult to communicate and monitor due to cyclical adjustments (typically via the output gap).
     - “Pay-as-you-go” rules are procedural and not counted as numerical fiscal rules in the database.
  3. Expenditure rules (ER)
     - Set limits on total, primary, or current government expenditures; often expressed as absolute terms, growth rates, or percentage of GDP with time horizons often between three to five years.
     - Advantages: easy to operate and monitor; do not restrict stabilization function during adverse shocks; can exclude cyclically sensitive expenditures to allow counter-cyclical response.
     - Not directly linked to debt sustainability because they do not constrain revenues.
  4. Revenue rules (RR)
     - Set ceilings or floors on revenues to boost collection and/or prevent excessive tax burdens.
     - Challenges: revenues are highly cyclical; revenue rules alone could produce procyclical policy; some rules restrict use of “windfall” revenue.

### C. Institutional and design characteristics of fiscal rules (covered in dataset)
- Coverage of fiscal rules
  - Preferable: wide coverage for most fiscal aggregates; majority of supranational rules cover general government level; national rules less likely to have wide coverage.
- Existence of enforcement mechanisms
  - Monitoring of compliance by a fiscal council or other separate entities outside government and explicit enforcement procedures in law or regulations are tracked.
- Supporting procedures and institutions
  - Dataset tracks existence of multi-year expenditure ceilings, independent bodies (e.g., fiscal councils) to set budget assumptions and monitor implementation, presence of a fiscal responsibility law, publication of a Medium-term Fiscal Framework report, and publication requirements for reports related to fiscal rules.
- Legal basis
  - Categories tracked include statutory provisions, regulations, international treaties, constitutional provisions; some rules have no legal basis and are implemented through political commitment or coalition agreement (examples noted: Australia, Cambodia).
- Escape clauses
  - Tracked features: presence and activation of escape clauses; whether triggering conditions and accountability mechanisms are specified.
  - Typical features of well-defined escape clauses: activation procedures, quantitative or qualitative triggering conditions (e.g., growth slowdown or national emergency), activation horizon, and accountability mechanisms (actions or requirements after exiting the clause).
- Correction mechanisms
  - Stipulate corrective actions and contain triggering conditions and thresholds to return to the rule.
  - Table AI.1 lists examples by nature and size of required adjustment (selected country lists included in source). Nature categories include:
    - Ex Post Adjustments — Return to the rule: Armenia, Austria, Bahamas, Belgium, Bulgaria, Chile, Colombia, Cyprus, Denmark, Dominican Republic, Estonia, France, Greece, Honduras, Italy, Malaysia, Pakistan, Peru, Portugal, Romania, Serbia, Slovenia, Spain, Sweden.
    - Ex Ante Adjustments — Return to the rule: Angola, Brazil, Czech Republic, Ecuador, Poland, Slovak Republic, Spain.
    - Adjustment for cumulative deviations — Ex Post: Costa Rica, Germany, Grenada; Ex Ante: Jamaica, Latvia, Lithuania, Luxemburg, Switzerland.
- Exclusion of budget components
  - Structural balance rules often exclude cyclical components in revenues and expenditures (examples: Chile, Colombia).
  - Expenditure rules sometimes exclude public investment from the expenditure rule or set a floor on public investment; other exclusions include interest payments, pensions, or cyclical unemployment benefits.

### D. Definition and inclusion criteria for fiscal councils
- Definition used in dataset:
  - A fiscal council (independent fiscal institution) is a technical nonpartisan entity that provides fiscal oversight.
- Inclusion conditions:
  - (i) aligned with the IMF definition of fiscal council (IMF 2013),
  - (ii) consistent with the main OECD Principles for Independent Fiscal Institutions (von Trapp, Lienert, and Wehner, 2016),
  - (iii) functional and visible institutions, such as maintaining a regularly updated website or other forms of public communication.
- Temporal and scope notes:
  - Dataset is cross-sectional but includes dates of establishment and of major reforms.
  - Captures all active fiscal councils as of end-2024 (amounting to over 50 fiscal councils worldwide, more than triple since the global financial crisis).
  - Focuses on de jure arrangements and not on adherence in practice.
  - Fiscal councils being established but not yet operational by end-December 2024 are not included (examples noted: Jamaica’s fiscal council is operational in January 2025; Poland is establishing a fiscal council).

### E. Key characteristics of fiscal councils (dataset fields)
- General information
  - Name, region, year of establishment, year of major amendment, tasks or governance, government level coverage.
- Remit/mandate
  - Positive and normative assessment of fiscal policy; macroeconomic or fiscal forecast preparation and assessment; long-term fiscal sustainability analysis; monitoring compliance with fiscal rules.
- Tasks and instruments
  - Indicators on councils’ communication to public and stakeholders; production of freely accessible publications; use of forecasts and recommendations for budget preparation; obligation for governments to explain deviations; whether council meets regularly with decision makers.
- Operational independence and accountability
  - Legal and operational independence features tracked: safeguarded financial resources commensurate with tasks; selection of governing members based on technical competence; guaranteed access to government information in legislation.
- Resources and staffing
  - Composition and term of governing members; body of appointment/dismissal; overall size of the council.
- Communication
  - Whether councils disseminate their own reports, hold parliamentary hearings or media press conferences, publish in media outlets after major fiscal events.
  - Whether the council has a communication policy/strategy, a dedicated webpage or social media channels.
  - Whether publications contain macro-fiscal forecast, assessment on fiscal rules implementation, debt sustainability analysis, and/or costing of fiscal policies.

### Annex Figure and sample coverage notes
- Annex Figure 1.1. Coverage of Fiscal Rules, 2024 (Number of countries) presents counts by rule type and coverage (National rules / Supranational rules; Central government / General government) with labels ER, RR, BBR, DR (figure data presented in source).
- Appendix Table 2.1. Sample Country Coverage lists many countries and indicates presence of fiscal rule and fiscal council and country classification (Advanced Economy, Emerging Market Economy, Low Income Developing Country) as recorded in the dataset.

*Source: Annex I. Fiscal Rules and Fiscal Councils Databases, IMF Working Papers — Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic (dataset coverage and definitions as presented in source PDF).*

### 5. Automatic stabilizers. Expenditure rules are typically not procyclical as they maintain aggregate

### 5. Automatic stabilizers. Expenditure rules are typically not procyclical as they maintain aggregate expenditures regardless of economic conditions. If expenditure-side automatic stabilizers are in place, the rules could be adjusted to allow automatic stabilizers in full operations, such as excluding unemployment benefits from the rule limits, to provide countercyclical support and stabilize the economy.

### Automatic stabilizers and expenditure rules
- Prepared by Virginia Alonso, Andresa Lagerborg, and Raphael Lam.
- Key policy point:
  - Expenditure rules are typically not procyclical because they maintain aggregate expenditures regardless of economic conditions.
  - If expenditure-side automatic stabilizers are in place, the rules could be adjusted to allow automatic stabilizers in full operation.
  - Example adjustment: excluding unemployment benefits from the rule limits to provide countercyclical support and stabilize the economy.

### Measuring deviations from fiscal rules — overview
- Deviations from budget balance rules are computed relative to fiscal rule limits.
- Fiscal outturns of fiscal balances are obtained from the IMF World Economic Outlook (WEO) database.
- Common rule targets and corresponding WEO variables include:
  - Overall fiscal balance → GGXOFB
  - Primary balance → GGXONLB
- Some rule targets require approximation using combinations of WEO variables (see mapping below).

### Mapping of budget balance rule targets to WEO variables (Annex Table 3.1)
- Overall Balance: GGXOFB
- Overall Balance excluding Foreign Financing and Grants: GGXOFB - GGRG *
- Overall Balance excluding Oil Revenues: GGXOFB - TXGO *
- Overall Balance excluding Investment: GGXOFB - NFIG *
- Primary Balance: GGXONLB
- Primary Balance excluding Oil Revenues: GGXONLB - TXGO *
- Primary Balance excluding Investment: GGXOFB - NFIG *
- Cyclically-Adjusted Primary Balance: GGCBP
- Structural Primary Balance: GGSBP
- Structural Overall Balance: GGSBP - GGEI *
- Note: Asterisks (*) indicate an imperfect match between the definition for the target and the available WEO variables.

### Econometric model for dynamics around deviations (Equation 3.1)
- Model specification:
  - D_i,t^X = β_0 D_i,t−1^X + β_1 D_i,t−1^X * I(D_i,t−1^X < 0) + β_2 D_i,t−1−X * I(D_i,t−1−X ≥ 0) + β_3 D_i,t−1−X * I(D_i,t−1−X < 0) + β_4 g_i,t + δ_i + u_i,t
  - Definitions:
    - i denotes the country and t the year.
    - D_i,t^X indicates distance from rule limits, with X taking the deviation values BBR or DR, and −X the opposite (DR for the BBR regression and vice versa).
    - I(·) is the indicator function.
    - g is real GDP growth.
    - β_0, β_1, β_2 and β_3 are regression coefficients.
    - δ_i are country fixed effects.
    - u_i,t is a potentially autocorrelated error term.
- Features:
  - Interaction term between deviations and an indicator for whether deviations were negative in the previous period — tests whether countries deviating from rules tend to revert faster to their mean deviations.
  - Cross-interaction terms between types of rules.
  - Controls for real GDP growth.

### Regression results and robustness checks (Annex Table 3.2)
- Estimation approach: Generalized Methods of Moments (Arellano-Bond estimator) as the regression includes lagged dependent variables.
- Robustness checks included:
  - Adding year fixed effects.
  - Including small countries (bottom quartile by GDP levels in USD in 2019).
  - Instrumenting real GDP growth with its own lag.
  - Adding interaction between fiscal rule deviations and recessions (defined as country-year observations where the output gap is below -2 percent).
- Sample sizes reported:
  - For Budget Balance Rule (BBR) regressions: N876, N876, N1050, N929, N876 (columns omitted labels retained as in source).
  - For Debt Rule (DR) regressions: N879, N879, N1061, N932, N879.

- Selected coefficient estimates (as reported in Annex Table 3.2; standard errors in parentheses):
  - Budget Balance Rule Deviations (panel 1)
    - Lag BBR_deviation: 0.791*** (0.055); 0.759*** (0.052); 0.811*** (0.063); 0.691*** (0.051); 0.804*** (0.061)
    - Lag BBR_deviation (exceeding): -0.209*** (0.074); -0.147* (0.080); -0.290*** (0.078); 0.006 (0.067); -0.325*** (0.116)
    - Lag DR_deviation (not exceeding): -0.031** (0.015); -0.010 (0.014); -0.043** (0.017); -0.024 (0.015); -0.034** (0.016)
    - Lag DR_deviation (exceeding): -0.012* (0.007); -0.015*** (0.006); -0.002 (0.011); -0.006 (0.006); -0.015** (0.007)
    - Real GDP growth: -0.298***; -0.125**; -0.316***; -0.321; -0.300*** (standard errors provided in table)
    - Lag BBR_deviation (exceeding) * output gap < -2%: 0.178** (0.089)
    - Fixed Effects: Country; Country & Year; Country; Country; Country
    - Estimator: Arellano-Bond; Arellano-Bond; Arellano-Bond; FE, clustered SE; Arellano-Bond

  - Debt Rule Deviations (panel 2)
    - Lag DR_deviation: 0.928*** (0.025); 0.931*** (0.029); 0.922*** (0.031); 0.919*** (0.068); 0.939*** (0.025)
    - Lag DR_deviation (exceeding): -0.056 (0.036); -0.076** (0.036); -0.082* (0.043); -0.000 (0.071); -0.105** (0.042)
    - Lag BBR_deviation (not exceeding): 0.339*** (0.104); 0.229** (0.112); 0.358*** (0.122); 0.245* (0.129); 0.370*** (0.093)
    - Lag BBR_deviation (exceeding): 0.471** (0.186); 0.455** (0.209); 0.385* (0.206); 0.486*** (0.152); 0.438** (0.191)
    - Real GDP growth: -1.027***; -0.800***; -1.180***; -2.036**; -1.036*** (standard errors provided in table)
    - Lag DR_deviation (exceeding) * output gap < -2%: 0.043 (0.028)
    - Fixed Effects: Country; Country & Year; Country; Country; Country
    - Estimator: Arellano-Bond; Arellano-Bond; Arellano-Bond; FE, clustered SE; Arellano-Bond

### Key empirical findings from regression analysis
- For budget balance rule deviations:
  - Results are similar across specifications.
  - When instrumenting GDP growth, the difference in persistence between countries exceeding and not exceeding rule limits is not significant.
  - Deviations from budget balance rules are significantly more persistent amid big recessions (interaction with output gap < -2 percent is significant).
- For debt rule deviations:
  - Results are mostly unchanged across robustness checks.
  - Difference in persistence between countries that exceed limits relative to those that do not is not significant in the baseline.
  - The difference becomes negative and significant when including year fixed effects and when adding the interaction term for recessions.
  - Persistence of deviations is higher in recessions as in the case of budget balance rules, but with a smaller coefficient that is not statistically significant.

*IMF Working Paper — Fiscal Rules and Fiscal Councils: Recent Trends and Revisions since the Pandemic (Working Paper No. WP/2025/198).*

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_Source: https://www.imf.org/-/media/files/publications/wp/2025/english/wpiea2025198-source-pdf.pdf_