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[Highlights] Pro-cyclical fiscal tightening might be one reason for the anaemic economic recovery in Europe, raising questions about the effectiveness of the EU's fiscal framework in achieving its two main objectives - public debt sustainability and fiscal stabilisation. In theory, the current EU fiscal rules, with cyclically adjusted targets, flexibility clauses and the option to enter an excessive deficit procedure, allow for large-scale fiscal stabilisation during a recession. However, implementation of the rules is hindered by the badly-measured structural balance indicator and incorrect forecasts, leading to erroneous policy recommendations. The large number of flexibility clauses makes the system opaque. The current inefficient European fiscal framework should be replaced with a system based on rules that are more conducive to the two objectives, more transparent, easier to implement and which have a higher potential to be complied with. The best option, re-designing the fiscal framework from scratch, is currently unrealistic. Therefore we propose to eliminate the structural balance rules and to introduce a new public expenditure rule with debt-correction feedback, embodied in a multi-annual framework, which would also support the central bank's inflation target. A European Fiscal Council could oversee the system.

Neokeynesian models emphasize government policy to smooth out the short run business cycles; NEOCLASSICAL models point to the neutrality of anticipated counter cyclical policy, discarding feed-back rules from the short run state of the economy to the settings of monetary and fiscal policies. My purpose in these notes is to formulate an expanded version (with public investment and public debt) of Friedman's (1957) NEOCLASSICAL FISCAL FRAMERWORK, whose policy proposals, as pointed out by Lucas (1981), may have increasing acceptance and influence at the light of new theoretical developments. The neoclassical fiscal rules are derived from a dynamic optimization program concerned with "long run efficiency or prospects for growth of the economic system", as suggested by Friedman. Government expenditures, public capital formation, taxation and public debt emission are determined irrespectively of short run cyclical fluctuations. A neoclassical fiscal framework whereby the government levies taxes to finance consumption, issues debt for financing public capital formation, charges a rental price for public capital services according to its marginal productivity and uses the proceeds to pay interest on public debt along the optimal growth path is shown to be an optimal public policy. ; Modelos keynesianos atribuem ao governo o papel de suavizar as flutuações cíclicas de curto prazo. Modelos neoclássicos sustentam a neutralidade das políticas anti-cíclicas em razão das expectativas racionais dos agentes econômicos, descartando regras com feedback das variáveis macroeconômicas que descrevem a posição da economia a curto prazo para as instrumentos de política monetária e fiscal. Meu propósito é formular uma versão ampliada (introduzindo investimentos públicos e emissão de dívida pública) do modelo fiscal neoclássico de Friedman (1957), cujas propostas de política econômica, como sugerido por Lucas (1981), podem ter aceitação e influência crescentes à luz da recente evolução da teoria macroeconômica. As regras fiscais neoclássicas são deduzidas de um programa de otimização dinâmica objetivando "eficiência na alocação de recursos a partir das perspectivas de crescimento da economia", como indicado por Friedman. Os gastos correntes do governo, o investimento público, os impostos e a emissão de dívida são determinados independentemente das flutuações cíclicas de curto prazo. O modelo fiscal neoclássico consiste em cobrar impostos para financiar o consumo corrente do setor público, financiar os investimentos através de emissões de dívida pública, cobrar pelo fornecimento dos servicos públicos para pagar os juros sobre a dívida pública ao longo da trajetória ótima de crescimento da economia.

This study analyses the link between fiscal frameworks and their budgetary impact. We look at different features of national numerical fiscal rules in combination with fiscal councils and medium-term budgeting frameworks. We construct our own time-varying dataset for national fiscal frameworks for the period 1990-2012 covering all 27 EU Member States and estimate a dynamic panel on aggregate and disaggregated fiscal policy variables. We find strong support that numerical fiscal rules help to improve the primary balance, and that the budgetary impact can be further strengthened when supported by independent fiscal councils and an effective medium-term budgeting framework.

Lebanon is expected to have gas resources in its Mediterranean basin, and these could turn thecountry into a natural gas producer over the next decade. Lebanon's economy and institutions will thus need to adapt to the challenges and opportunities that such change will bring. In this paper, we address how Lebanon's fiscal framework will need to be reformulated to take into account potential resource revenue. Designing a fiscal regime appropriately is an absolute prerequisite to make sure the government can receive a fair share of the resources while investors face appropriate incentives to inve

Kazakhstan benefited from the oil boom of 2000–14 that led to income growth and poverty reduction and helped build a fiscal cushion to stabilize the economy during downturns. During this period, nominal GDP per capita increased ten-fold, from US$1,229 in 2000 to US$12,807 in 2014, mainly due to price effects from currency appreciation that followed an expansion of the oil sector. Income growth led to a substantial decline in the poverty rate, from 77 percent in 2001 to 16 percent in 2014. As oil output more than doubled and the oil price super-cycle emerged, the Government of Kazakhstan (GoK) accumulated substantial fiscal savings in its oil fund, the National Fund of the Republic of Kazakhstan (NFRK).2 Fiscal savings in the NFRK peaked at US$73 billion (33 percent of GDP) at end-2014. A portion of these funds was used for anti-crisis programs in 2007-10, during which time the fiscal stimulus program totaled US$18 billion (about 15 percent of GDP). The authorities must urgently adopt and start implementing a fiscal consolidation strategy and refocus macro-fiscal policy on promoting diversified growth and high-quality job creation. The countercyclical fiscal stance adopted in 2014 led to an increase in the nonoil fiscal deficit (NOD), which is too high to ensure medium-term fiscal sustainability and threatens the long-term growth potential of the nonoil tradable economy. Successful fiscal consolidation would require: (i) reducing inefficient expenditure that distorts private incentives while redirecting savings toward productivity-enhancing spending; and (ii) eliminating inefficient tax benefits that result in an uneven playing field for investment. While pursuing a fiscal consolidation effort over the medium term, there are potential benefits to reviewing Kazakhstan's fiscal policy framework and institutions with the goal of strengthening their coherence, credibility, and flexibility. This Public Finance Review (PFR) aims to help the authorities identify areas for fiscal consolidation that will bring about fiscal sustainability in the medium term and support economic transformation in the long run. While developing a fiscal consolidation strategy, the authorities should address four policy areas to enhance fiscal sustainability and support economic transformation. These are discussed in the following four policy focus chapters: (i) enhancing the credibility of the fiscal policy framework; (ii) improving public spending efficiency and effectiveness; (iii) mobilizing nonoil revenue and optimizing the tax system; and (iv) strengthening fiscal policy institutions.

The COVID-19 pandemic has been a significant challenge for all tiers of government across the world. In the UK, the devolved governments of Northern Ireland, Scotland and Wales are responsible for most of the public services significantly impacted by the pandemic, and have designed and implemented large parts of the public health response to it. They have also been responsible for designing and administering grants and property tax reliefs for businesses. They have had to discharge these responsibilities and manage their budgets in the context of fiscal frameworks agreed before the pandemic – although the UK government made modest, but important, temporary changes to funding arrangements in 2020–21. These changes, in combination with the enormous increases in funding made available by the UK government, and the fairly symmetric impact of the pandemic across the four nations of the UK, meant the risk of a major funding crisis for the devolved governments was averted. But this 'success' does not mean there is not room for improvement to the existing fiscal frameworks in order to make them more robust to future shocks, or that the same ad hoc changes would necessarily be appropriate if another extreme adverse shock occurred. This report considers a range of options to reform the existing fiscal frameworks, with two main objectives in mind: first, to make them more robust to future crises, including a potential reintensification of the COVID-19 pandemic during Winter 2021–22; and second, to help the devolved governments support economic and social recovery from the pandemic.

This paper discusses the history and future of the Swedish fiscal framework. First, we claim that the fiscal framework has contributed to a sharp decline in the debt-to-GDP ratio, from one of the highest to one of the lowest in the European Union. Next, we focus on the future. Despite its success, we argue that the framework is unsustainable. Running large surpluses over the long run is not a steady-state solution. We recommend two changes to the framework. First, that the public pension system is excluded, and second that the Swedish fiscal authorities shift attention from maintaining a budget surplus of 1/3 percent of GDP over the business cycle to sustaining a stable debt-to-GDP ratio of 25 percent of GDP +/- 5 percentage points. A debt anchor at this level will provide sufficient insurance in case of a future major economic crisis judging from recent cross-country evidence. In addition, a debt anchor around 25 percent of GDP would contribute to political stability in time of crises. In a world, where populism and austerity fatigue are rampant, we stress the importance of a fiscal framework allowing successful consumption and tax smoothing in case of major negative shocks to the fiscal space. We conclude with a set of recommendations for the fiscal governance of the EU.

Reflecting diseconomies of scale in providing public goods and services, recurrent spending in small states typically represents a large share of GDP. For some small states, this limits the fiscal space available for growth-promoting capital spending. Small states generally face greater revenue volatility than other country groups, owing to their exposure to exogenous shocks (including natural disasters) and narrow production bases. With limited buffers, revenue volatility often results in procyclical fiscal policy as the econometric analysis shows. To strengthen fiscal frameworks, small state