3. Types of Fiscal Rules

Countries have experimented with different types of ‘rules’, from political understandings among the major parties, to expressions of broad fiscal objectives, along with stricter applications. At that end of the spectrum, spending limits are enshrined in legislation to force compliance, or punitive measures imposed if targets are not achieved. While the looser and more flexible principles have been effective in most of the countries where they have been adopted, stricter rules have produced mixed results. As they are often adopted in times of economic instability or political disagreement rather than in periods of recovery or political consensus, they are set up to fail in many respects. The broader and simpler principles have generally been expressed when governments are more confident of positive fiscal outcomes.