Do Fiscal Rules Foster Fiscal Discipline in Resource-Rich Countries?

IMF Working Papers, April 29, 2023

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Scope: panel data for 57 commodity exporting countries from 1976 to 2021.
Main empirical focus: performance of fiscal rules in resource-rich countries (RRC) with attention to oil-exporting countries and terms-of-trade cycles.

Fiscal rules reduce the procyclicality of real public expenditures with terms of trade in oil exporting countries.
Fiscal rules improve non-resource primary balances in all RRC, especially during terms of trade upturns.
The rules’ design matters for outcomes:
- Expenditure rules can address the procyclicality of public expenditures with terms-of-trade.
- For oil-exporters, revenue rules also help address procyclicality (limited data on revenue rules implies cautious interpretation).
- Debt rules and fiscal balance rules have a positive impact on improving non-resource fiscal balances, especially in oil exporting countries.

Case studies: Botswana, Mongolia, and Timor-Leste.
Even when fiscal rules are not fully complied with, they can lead to some degree of fiscal discipline.
Quality of the fiscal framework is critical:
- Frequent revisions, lack of compliance, or low stringency of rules can significantly hamper effectiveness.

Subjects: Economic sectors; Expenditure; Financial crises; Fiscal policy; Fiscal rules; Fiscal stance; International trade; Oil exports; Terms of trade.
Keywords: debt rule; design matter; expenditure rule; Fiscal rules; Fiscal stance; forecasting commodity price; Global; oil exporter; Oil exports; revenue rule; Terms of trade.

IMF Working Paper No. 2023/088 — Ablam Estel Apeti, Olivier Basdevant, Veronique Salins; April 29, 2023.