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.
Database on numerical fiscal rules
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 first collected in a 2006 survey, with annual updates scheduled since 2008. The latest available update covers 2015. The questionnaires of those 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.
In light of the broad-ranging reforms to national fiscal frameworks in recent years, an in-depth review was carried out by the Directorate General for Economic and Financial Affairs during 2015 and early 2016 and resulted in an updated and enhanced methodology. Thus the 2015 update marks the transition to the new and improved methodology. To provide a bridge between the 'old' and 'new' data series, the respective results have been computed according to both methodologies. The 'old' methodology will be discontinued.
The fiscal rule strength index (FRSI)
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 for the new methodology information on i) legal base, ii) binding character, iii) monitoring and enforcement bodies, iv) correction mechanisms, and v) resilience to shocks; whereas for the old methodology - (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.
The fiscal rule index (FRI)
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 1990-2015.
- Analysis: National fiscal frameworks (Part II, chapter 3 of the Report on "Public finances in EMU – 2010", pp. 98ff.)
- Analysis: Current domestic fiscal framework reforms across the EU (Part I, chapter 5 of the Report on "Public Finances in EMU – 2010”, pp. 73-80.
- Analysis: Numerical fiscal rules in the EU Member States in 2008 (Part II, chapter 4.2 of the Report on "Public finances in EMU – 2009", pp. 87ff.)
- Analysis: Numerical fiscal rules in the EU Member States in 2006 (Part III, chapter 3 of the Report on "Public finances in EMU - 2006", pp. 149ff.)
- Further analyses
- Figure 1 : Number of numerical fiscal rules in force in the EU Member States by type, 1990 to 2015
- Figure 2 : Numerical fiscal rules in EU Member States by type and sector of government, 2015
- Figure 3, old methodology : The fiscal rule index (FRI) in the EU and selected groups of Member States, 1990 to 2015
- Figure 3, new methodology : The fiscal rule index (FRI) in the EU and selected groups of Member States, 1990 to 2015
- Figure 4, old methodology : The fiscal rule index (FRI) in the EU-28 by country, 2014 and 2015
- Figure 4, new methodology : The fiscal rule index (FRI) in the EU-28 by country, 2015
- Figure 5, old methodology : Average of the dimensions composing the FRI index
- Figure 5, new methodology : Average of the dimensions composing the FRI index