Back to the Future: Fiscal Rules for Regaining Sustainability

November 7, 2019

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Format: Chicago

Serhan Cevik. Back to the Future: Fiscal Rules for Regaining Sustainability, (USA: International Monetary Fund, 2019) accessed October 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Expenditure, Fiscal policy, Fiscal rules, Fiscal stance, Public debt

Keywords: Budget constraint, Caribbean, Cyclically-adjusted government expenditure, Debt, Debt accumulation equation, Debt ratio, Fiscal policy, Fiscal policy cyclicality, Fiscal rules, Fiscal stance, Government, Government's fiscal policy, Procyclicality, Sustainability, WP

Publication Details

Pages:

22
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/242
Stock No:

WPIEA2019242
ISBN:

9781513519128
ISSN:

1018-5941

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