Crisis and consolidation – Is there a way back to fiscal rules?

Abstract

For long decades, it had been a prevailing opinion in economic science that the state has to formulate its classical functions – such as stabilisation, allocation and redistribution – in a discretionary manner, i.e. conforming and reacting to the current circumstances. In the past decades, however, more and more developed and emerging economies chose the way of limiting the discretionary policy with rules. While prior to the early 1990s fiscal rules had been introduced only in some and decisively developed countries, in the last two decades – not irrespective of the waves of indebtedness of the 1970s–1980s and the start of monetary cooperations (especially the European Economic and Monetary Union) – an increasing number of states decided on applying fiscal policy rules. In 1990, only seven countries used national-level rules. Barely twenty years later, already some eighty states limited the scope for action of their respective fiscal policies in this manner (Kumar et al., 2009).