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Fiscal Rules Applied in OECD Countries, 2010
Characteristics of the Set of Rules
Euro
Area
Fiscal Rule
a)
Budget
Target
Expenditure
Target
Rule to Deal
with Revenue
Windfalls
Golden
b)
Rule
Summary
Austria
Yes
Stability and Growth Pact
(1997)
Domestic Stability Pact
(2000)
Yes
Yes
No
No
Domestic Stability Pact Law
• Negotiated floors on the budget balance for each government level (a
surplus of 0.74% of GDB for the Länder, zero for municipalities and the
federal government balance should be such that the Stability Programme
target is met). Outcomes are assessed by an independent auditor. The
law embodies financial sanctions in case of non-compliance.
Belgium
Yes
Stability and Growth Pact
(1997)
National budget rule
(2000)
Yes
Yes
Yes
No
Cooperation agreement
• Permissible deficits are established for the federal government plus Social Security on the one hand, and for the regions and the local government on the other.
Czech
Republic
No
Stability and Growth Pact
(2004)
Law on budgetary rules
(2004)
Yes
Yes
No
No
Denmark
No
Medium-term fiscal
strategy (1998)
Yes
Yes
No
No
A medium-term fiscal strategy for the period until 2010
• Structural general government surpluses of around 2% of GDP.
• A "tax freeze" covering both central and sub-national government
(introduced in 2002).
Finland
Yes
Stability and Growth Pact
(1997)
Multiyear spending limits
(since 1991)
Yes
Yes
No
No
Medium-term objectives
• Balanced central government finances in structural terms by 2007.
• Central government expenditure (excluding interest payments, unemployment benefits and a few other items) is subject to a cap over the
period 2004 to 2007.
France
Yes
Stability and Growth Pact
(1997)
Central government
expenditure ceiling (1998)
Yes
Yes
Yes
No
Germany
Yes
Stability and Growth Pact
(1997)
Constitutional Rule (2009)
Yes
Yes
No
No
Domestic Stability Pact
• Golden rule: the budgeted deficit of the federal government must not
exceed federal investment spending. Most Länder constitutions have a
similar law.
• Both the central government and sub-national governments should aim at
balanced budgets
Page 1 of 4
Fiscal Rules Applied in OECD Countries, 2010
Characteristics of the Set of Rules
Euro
Area
Fiscal Rule
a)
Budget
Target
Expenditure
Target
Rule to Deal
with Revenue
Windfalls
Golden
b)
Rule
Summary
Greece
Yes
Stability and Growth Pact
(1997)
Yes
No
No
No
Hungary
No
Stability and Growth Pact
(2004)
Fiscal Responsibility law
(2008)
Yes
Yes
No
No
Ireland
Yes
Stability and Growth Pact
(1997)
Yes
Yes
No
No
Italy
Yes
Stability and Growth Pact
(1997)
Domestic Stability Pact
(since 1999)
Yes
No
No
No
Luxembourg
Yes
Stability and Growth Pact
(1997)
Coalition agreement on
expenditure ceiling
(since 1999)
Yes
No
No
No
Netherlands
Yes
Stability and Growth Pact
(1997)
Coalition agreement on
multiyear expenditure
targets (since 1994)
Yes
Yes
Yes
No
Multi-year expenditure agreements
• Separate expenditure ceilings on central government, social security, and
labour market and health spending.
• Automatic stabilisers are allowed to work fully on the revenue side,
except if the deficit came close to the Maastricht Treaty's 3% ceiling.
Poland
No
Stability and Growth Pact
(2004)
Act on Public Finance
(1999)
Yes
No
No
No
Act on Public Finance
• The Constitution sets a limit of 60% of GDP for total public debt.
Portugal
Yes
Stability and Growth Pact
(1997)
Yes
No
No
No
Slovak
Republic
Yes
Stability and Growth Pact
(2004)
Yes
Yes
Yes
No
Page 2 of 4
Fiscal Rules Applied in OECD Countries, 2010
Characteristics of the Set of Rules
Euro
Area
Fiscal Rule
a)
Budget
Target
Expenditure
Target
Rule to Deal
with Revenue
Windfalls
Golden
b)
Rule
Summary
Spain
Yes
Stability and Growth Pact
(1997)
Fiscal Stability Law
(since 2001)
Yes
Yes
No
No
Fiscal Stability Law
• Accounts should balance or show a surplus at all levels of government
(central, social, territorial and local) as well as for public enterprises and
corporations.
• A cap is put on central government expenditure and a contingency fund
(2% of expenditure) is set up to cover unscheduled non discretionary expenditure.
Sweden
No
Fiscal Budget Act
(since 1996)
Yes
Yes
No
No
Fiscal Budget Act
• Set nominal expenditure limits for the subsequent three years on
27expenditure areas (including social security).
• Maintain a general government surplus of 2% of GDP on average over
the business cycle.
United
Kingdom
No
Code for fiscal stability
(1998); superseded by
multi-year fiscal mandate
Yes
No
No
No
Code for Fiscal Stability
• Golden rule: over the business cycle, the Government will borrow only to
invest and not to fund current spending.
• Sustainable investment rule: net debt as a proportion for GDP must be
held stable over the business cycle at a prudent level (defined so far as
net debt below 40% of GDP).
Norway
No
Fiscal Stability guidelines
(2001)
Yes
No
Yes
No
Fiscal Stability Guidelines
• Structural non-oil central-government budget deficit should not exceed
4% of the Government Petroleum Fund over the cycle.
• In the event of major revaluations of the Fund's capital or statistical revisions of the structural deficit, corrective action should be spread over
several years.
Switzerland
No
Debt containment rule
(2001, but in force since
2003)
Yes
Yes
Yes
No
Debt Containment Rule
• Sets a ceiling for expenditures which is equal to total revenues adjusted
for the cycle and for ex post deviations of out-turns from the norm laid out
in the rule.
Australia
No
Charter of Budget
Honesty (1998)
Yes
No
No
No
Charter of Budget Honesty
• No legislated numerical rules. The Charter requires the government to
spell out objectives and targets but places no constraints on their nature.
Page 3 of 4
Fiscal Rules Applied in OECD Countries, 2010
Characteristics of the Set of Rules
Euro
Area
Fiscal Rule
a)
Budget
Target
Expenditure
Target
Rule to Deal
with Revenue
Windfalls
Golden
b)
Rule
Summary
Canada
No
Debt repayment plan
(1998)
Yes
No
Yes
No
Debt Repayment Plan
• There are no legislated rules at the federal level but the government has
a "balanced budget or better" policy. Most provinces have some form of
balanced budget legislation.
Japan
No
Cabinet decision on the
medium term fiscal
perspective (2002)
Yes
Yes
No
No
A Reform and Perspective programme (revised in 2003)
• Maintain general government expenditures at or below the 2002 level of
38% of GDP.
• Achieve primary budget surplus by early 2010s.
New Zealand
No
Fiscal responsibility act
(1994)
Yes
Yes
No
No
United
States
No
PAYGO rules (2010)
Yes
No
No
No
Empty cells: No information was provided for these countries in the datasource.
(a) Spending rules have been criticized for lowering the quality of public spending. This has led to the adoption of golden rules that specifically exclude investment spending
from the cap on the grounds that there is a natural myopic bias towards cutting investment over current expenditure. This type of rule is, however, more difficult to monitor and easier to circumvent (Fatás, 2005). In practice, the distinction between current and investment spending is less than clear cut. Both the United Kingdom and
Germany have abandoned golden rules. Moreover, all rules encourage “gimmickry”, including one-off measures and creative accounting, to circumvent them (Koen and
van den Noord, 2005). This problem might be more serious with an ambitious expenditure rule has a wide ambit to include total expenditure (Price, 2010), applies to different levels of government and includes monitoring of tax expenditures (Anderson and Minarik, 2006).
Anderson, B and J. J. Minarik (2006), “Design Choices for Fiscal Policy Rules”, OECD Journal on Budgeting, Vol. 5.
Fatás, A. (2005), “Is there a Case for Sophisticated Balanced-Budget Rules?”, OECD Economics Department Working Papers, No. 466.
Koen, V. and P. van den Noord (2005), “Fiscal Gimmickry in Europe: One-off Measures and Creative Accounting”, OECD Economics Department Working Papers,
No. 417.
Price, R. (2010), “Political Economy of Fiscal Consolidation”, OECD Economics Department Working Papers, No. 776.
(b) The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not
to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government should only borrow to pay for investment that benefits future generations. Day-to-day spending that benefits today's taxpayers should be paid for with today's taxes, not with leveraged investment.
Therefore, over the cycle the current budget (i.e., net of investment) must balance or be brought into surplus.
Source: OECD Economic Outlook, Volume 2010/2, OECD 2010, pp. 257-258.
Canada and Japan: OECD, Economic Outlook, No. 81, Paris 2007, p. 221.
For Summary: Joumard,J., Kongsrud, P.H., Nam, Y.-S., Price, R., Enhancing the effectiveness of public spending: Experience in OECD countries, OECD,
Economics Department Working Paper No. 380, 2004.
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