What are numerical fiscal rules?
According to the most widespread definition, fiscal policy rules set numerical targets for budgetary aggregates. More specifically, they pose a permanent constraint on fiscal policy, expressed in terms of a summary indicator of fiscal outcomes, such as the government budget balance, debt, expenditure, or revenue developments. While the first primary objective of fiscal rules is to enhance budgetary discipline, they can also foster policy coordination between different levels of government depending on their institutional coverage. Additionally, fiscal rules may further contribute to the reduction of uncertainty about future fiscal policy developments. However, fiscal rules can only yield these benefits if appropriate institutions for monitoring and enforcement mechanisms are in place, or if they are supported by strong political commitment.
Commission services have compiled a dataset on domestic fiscal rules in force in the time period since 1990 across EU countries by collecting directly this information from the EU Member States. The dataset covers all types of numerical fiscal rules (budget balance, debt, expenditure, and revenue rules) at all levels of government (central, regional, and local, general government, and social security). The information was collected in a survey, 2006 with annual updates scheduled since 2008. The latest available update to date is of 2014. The questionnaires of these surveys requested information on the description and definition of the fiscal rule and its coverage, its statutory base, monitoring and enforcement mechanisms, as well as experience with the respect of the rule.
To be effective in containing budgetary imbalances, fiscal rules need to be equipped with appropriate characteristics within the institutional framework of budgetary policy: whether a fiscal rule will be respected or not depends to a large extent on its institutional features. To capture the influence of these features, DG ECFIN has constructed an index of strength of fiscal rules, using information on (i) the statutory base of the rule, (ii) room for setting or revising its objectives, (iii) the body in charge of monitoring respect and enforcement of the rule, (iv) the enforcement mechanisms relating to the rule, and (v) the media visibility of the rule.
Based on the fiscal rule strength index for each rule, a comprehensive time-varying fiscal rule index for each Member State was constructed by summing up all fiscal rule strength indices in force in the respective Member State weighted by the coverage of general government finances of the respective rule (i.e. public expenditure of the government sub sector(s) concerned by the rule over total general government expenditure). In the presence of more than one rule covering the same government sub-sector, the second, third and fourth rules obtain weights ½, ⅓, and ¼, to reflect decreasing marginal benefit of multiple rules applying to the same sub-sector. The assigned weights are mainly determined by the fiscal strength of the rule and its coverage. The fiscal rules database contains the time series for the fiscal rule index 1990-2014.