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Prepared by Davide Lombardo.
For the purpose of this chapter, a fiscal rule is a permanent constraint on fiscal policy, expressed in terms of a summary indicator of fiscal performance, such as the government budget deficit, borrowing, debt, or a major component thereof (Kopits and Symansky, 1998). Hence, this chapter does not address the questions related to the desirable characteristics of budget formulation/approval/implementation, which have been shown to have potentially important effects on budgetary outcomes—see Von Hagen and Harden (1995), Gleich (2003), Fabrizio and Mody (2006), and references therein. For Turkey, a good reference on these matters is IMF (2006).s well.
A case in point is the failure of Argentina’s 2001 deficit rule, a last attempt to restore market confidence in the face of a quickly deteriorating fiscal outlook.
In addition to 2001, there were sharp contractions of economic activities in 1994 and 1999 as well.
Dában and others (2003) advocate an expenditure rule for France, Germany, Italy, and Spain, possibly supplemented by a medium-term debt target, based on the need to reduce these countries’ high tax burden.
Anderson and Minarik (2006) lean in favor of spending rules over budget deficit rules mainly for this reason.
These are the High Council of Finance in Belgium, the Economic Council in Denmark, the State Audit Offices in Estonia and Hungary, the Cour de Comptes in France, the Courts of Auditors in Spain and in Portugal, the National Institute for Economic Research in Sweden, and the National Audit Office in the United Kingdom. The functions of the other institutions (there are a total of 23 in the EU) range from analyzing proposals to designing or vetting the budget’s macroeconomic framework. In the case of Turkey, the IMF-supported programs have, in the eyes of market participants, served as anchor and monitoring device of the “primary surplus rule.” The current Stand-By Arrangement is, however, slated to expire in May 2008.