Expenditure Rules: Effective Tools for Sound Fiscal Policy?

IMF Working Papers, February 12, 2015

Source details

This paper provides new evidence on the effectiveness of expenditure rules.
The analysis is based on a unique dataset covering all countries with national and supranational fiscal rules, including 33 expenditure rules, between 1985 and 2013.
Contributions to literature:
- It is the most comprehensive assessment of compliance with rules and of the potential role of expenditure rules, in particular regarding long-term sustainability.
- It analyzes whether expenditure rules are associated with changes in public investment and its efficiency.

Dataset scope:
- Covers all countries with national and supranational fiscal rules between 1985 and 2013.
- Includes 33 expenditure rules.
Main analytical foci:
- Compliance with fiscal rules.
- Potential role of expenditure rules for long-term fiscal sustainability.
- Association between expenditure rules and public investment levels and efficiency.

Expenditure rules are evaluated for their effectiveness as tools for sound fiscal policy, with attention to:
- Enforcement and compliance mechanisms.
- Long-term sustainability outcomes.
- Possible impacts on public investment spending and investment efficiency.
The paper informs design choices for fiscal frameworks seeking to balance expenditure control with protection of public investment.

Empirical analysis draws on a unique cross-country dataset of fiscal rules (national and supranational) covering 1985–2013.
The sample explicitly includes 33 identified expenditure rules.
The paper assesses compliance behavior, sustainability implications, and relationships with public investment and efficiency.