A New Fiscal Rule: Should Israel Go Swiss?

29 Pages Posted: 14 Apr 2008

See all articles by Xavier Debrun

Xavier Debrun

International Monetary Fund (IMF) - Research Department

Natan P. Epstein

International Monetary Fund (IMF)

Steven A. Symansky

International Monetary Fund (IMF)

Date Written: April 2008

Abstract

We propose a fiscal rule that fulfills a specific debt reduction objective while maintaining significant fiscal flexibility - two overarching concerns in Israel. Not unlike the Swiss "debt brake," the rule incorporates an error-correction mechanism (ECM) through which departure from the debt objective affects binding medium-run expenditure ceilings. Two variants of our ECM rule are shown to be superior to a comparable deficit rule in terms of attaining the debt objective and allowing for fiscal stabilization while supporting medium-term expenditure planning. Given its relative sophistication, a proper implementation of the ECM rule requires supportive fiscal institutions, including independent input and assessment.

Keywords: Working Paper, Israel

Suggested Citation

Debrun, Xavier and Epstein, Natan P. and Symansky, Steven A., A New Fiscal Rule: Should Israel Go Swiss? (April 2008). IMF Working Paper No. 08/87, Available at SSRN: https://ssrn.com/abstract=1119427

Xavier Debrun (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-8321 (Phone)
202-623-6343 (Fax)

Natan P. Epstein

International Monetary Fund (IMF) ( email )

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

Steven A. Symansky

International Monetary Fund (IMF)

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

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