## Fiscal Rules and Fiscal Councils: Recent Trends and Performance during the COVID-19 Pandemic

_IMF Working Papers, January 27, 2022_

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## Bibliographic details
- Authors: Hamid R Davoodi, Paul Elger, Alexandra Fotiou, Daniel Garcia-Macia, Xuehui Han, Paulo A Medas
- Published: January 27, 2022
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400200472.001

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### Key findings and evidence
- Adoption of fiscal rules and fiscal councils continued to increase globally over the last decades based on two new global datasets.
- During the pandemic, fiscal frameworks were put to test.
- The widespread use of escape clauses was one of the novelties in this crisis, which helped provide policy room to respond to the health crisis.
- The unprecedented fiscal actions have led to large and widespread deviations from deficit and debt limits.
- The evidence shows that fiscal rules, in general, have been flexible during crises but have not prevented a large and persistent buildup of debt over time.
- Experience shows that deviations from debt limits are very difficult to reverse.
- The paper presents evidence on the benefits of a good track record in abiding by the rules.
- These findings highlight difficult policy choices ahead and the need to further improve rules-based fiscal frameworks.

### Themes and analysis
- Trends in institutional adoption:
  - Continued global increase in adoption of fiscal rules and fiscal councils (based on two new global datasets).
- Crisis response and institutional design:
  - Escape clauses were widely used during the COVID-19 pandemic to create policy room for health-related spending.
  - Flexibility of rules during crises allowed large fiscal actions but undermined adherence to deficit and debt limits.
- Debt dynamics and reversibility:
  - Large and persistent buildup of debt occurred despite the existence of fiscal rules.
  - Deviations from debt limits are very difficult to reverse, implying long-term fiscal implications.
- Track record and credibility:
  - A good historical record of abiding by fiscal rules provides measurable benefits (evidence presented in the paper).

### Implications and policy considerations
- Policy choices ahead are difficult given the trade-off between crisis responsiveness and long-term debt sustainability.
- There is a demonstrated need to further improve rules-based fiscal frameworks to enhance resilience while preserving fiscal credibility.
- Strengthening the track record of compliance with fiscal rules can yield benefits for fiscal governance and outcomes.

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## Content in this bundle

- **Working Paper**
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_Source: https://www.imf.org/en/publications/wp/issues/2022/01/21/fiscal-rules-and-fiscal-councils-512128_