A New Fiscal Rule: Should Israel “Go Swiss?”

By Steven A. Symansky, Xavier Debrun, Natan P. Epstein

April 1, 2008

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Steven A. Symansky, Xavier Debrun, and Natan P. Epstein A New Fiscal Rule: Should Israel “Go Swiss?”, (USA: International Monetary Fund, 2008) accessed October 6, 2024

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.

Subject: Budget planning and preparation, Expenditure, Fiscal policy, Fiscal rules, Public debt

Keywords: Deficit target, Expenditure ceiling, Expenditure growth ceiling, Expenditure rule, Medium-run expenditure plan, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2008/087
Stock No:

WPIEA2008087
ISBN:

9781451869484
ISSN:

1018-5941

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