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Fiscal Rules as Means to Consolidate Budgets

Press Release October 2, 2012

The steep increase in the national debts of many countries requires considerable efforts to consolidate budgets. Fiscal rules are considered an important element of a successful strategy for consolidation as they limit the political scope and ensure that the financial markets can rely on the consolidation process. The trust of market participants thus created is elementary for the success of debt reduction.

Where the precise arrangement of fiscal rules is concerned opinions often differ widely. "Fiscal rules, supporting the budget consolidation, should contain a long-term goal for the debt ratio and a short-term goal for the budget deficit," suggests Institute of the World Economy president, Dennis J. Snower. "The inclusion of the business cycle contributes to the reduction of the risk of a pro cyclical budget policy." According to Snower, any surplus during the consolidation phase should be used exclusively for the purpose of debt reduction. "In order to avoid budget laws infringing fiscal rules an independent debt commission should preside over their compliance."

Should the fiscal rule target the national ratio or the debt ratio? What would be an appropriate time frame for budget consolidation? To what extent should effects of the business cycle influence the rule? What measures can be taken to stop the infringement of the fiscal rule? These and further questions will be discussed at the Global Economic Symposium in Rio de Janeiro, 16 October to 17 October 2012, which is expected to be attended by 600 experts from the fields of politics, science, economy and society.


“The Global Economic Symposium (GES) 2012 is being jointly organized by the Kiel Institute for the World Economy (IfW) and the Bertelsmann Stiftung, in cooperation with the German National Library of Economics – Leibniz Information Centre for Economics (ZBW) and in collaboration with the Fundação Getulio Vargas (FGV).

Further information can be found at www.global-economic-symposium.org and at the official GES-blog at blog.global-economic-symposium.org.

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