Quantitative Fiscal Rule to Consolidate and Shield the Colombian Public Finances

Abstract

Fiscal rules enhance the credibility of economic policy, allow countercyclical and sustainable fiscal policies, and contribute to macroeconomic stability and economic growth. The Colombian government has used fiscal rules to limit the growth of expenditure and the indebtedness of sub-national governments, and to promote fiscal transparency and responsibility. However, their success has been partial. This paper presents and analyzes a quantitative fiscal rule of 1% of GDP in the structural primary surplus for the central government, in order to consolidate the country's adjustment of public finances and reduce their vulnerability in the future. If that rule were implemented this year, the government would attain savings of 0.7% of GDP between 2008 and 2011, which would reduce the public debt level by about 3 percentage points of GDP by the end of the period.

Note: Downloadable Document is in Spanish.

Keywords: fiscal rules, credibility, anti-cyclical fiscal policy, stability, structural primary balance

JEL Classification: E61, E62, H60, H61, H62