Anchor Me: The Benefits and Challenges of Fiscal Responsibility

March 25, 2019

Preview Citation

Format: Chicago

Serhan Cevik. Anchor Me: The Benefits and Challenges of Fiscal Responsibility, (USA: International Monetary Fund, 2019) accessed December 24, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper discusses the benefits and challenges of implementing a rule-based fiscal responsibility framework, using the Philippines as a case study. It estimates structural measures of the fiscal stance over the period 1980–2016 and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis indicates that discretionary fiscal policy has been procyclical, and the degree of procyclicality has increased in recent years. While the national government’s non-binding ceiling on the overall budget deficit is helpful, it does not constitute an appropriate operational target to guide fiscal policy over the economic cycle and necessarily ensure that the fiscal stance meets the government’s intertemporal budget constraint. To this end, using stochastic simulations, this paper makes the case for a well-designed fiscal responsibility law that enshrines explicit fiscal rules designed for countercyclical policy and long-term debt sustainability, and an independent fiscal council to improve accountability and transparency.

Subject: Expenditure, Fiscal policy, Fiscal rules, Fiscal stance, Public debt

Keywords: Africa, Anchor simulation, Budget constraint, Cyclically-adjusted government expenditure, Debt, Debt anchor, Fiscal policy, Fiscal rules, Fiscal stance, Global, Government, Government debt, National government, Procyclicality, Structural budget balances, WP

Publication Details

Pages:

20
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/070
Stock No:

WPIEA2019070
ISBN:

9781498302937
ISSN:

1018-5941

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