Back to the Future: Fiscal Rules for Regaining Sustainability

23 Pages Posted: 3 Dec 2019

See all articles by Serhan Cevik

Serhan Cevik

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

This paper assesses the cyclicality and sustainability of fiscal policy in Belize and applies a stochastic simulation model to determine the optimal set of fiscal rules. The empirical analysis shows that fiscal policy in Belize has been significantly procyclical and unsustainable much of the period since 1976. While the government's recent commitment to maintain a primary surplus of at least 2 percent of GDP until 2021 is supporting debt reduction, stochastic simulations indicate that further improvement in the primary balance is necessary to reliably bring the debt-to-GDP ratio to a sustainable path. Given Belize's history of large economic shocks, this paper proposes explicit fiscal rules designed for countercyclical policy and debt sustainability. It recommends integrating such rules into a well-designed fiscal responsibility law and establishing an independent fiscal council to improve accountability and transparency.

Keywords: Economic stabilization, Fiscal policy, Fiscal indicators, Economic policy, Economic growth, sustainability, procyclicality, debt, fiscal rules, WP, debt-to-GDP ratio, debt-to-GDP, countercyclical, output gap, primary balance

JEL Classification: E12, E32, E60, E62, E63, H62, E01, H83, E52

Suggested Citation

Cevik, Serhan, Back to the Future: Fiscal Rules for Regaining Sustainability (November 2019). IMF Working Paper No. 19/242, Available at SSRN: https://ssrn.com/abstract=3496718

Serhan Cevik (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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