Simplicity, Credibility, Flexibility: The Wrong Balancing of the Golden Rule of Public Finance
摘要
Recent fiscal slippages in EU economies highlighted the urgency of restoring sound public finance to ensure fiscal sustainability. Economic literature on fiscal discipline has grown substantially and developed that effective fiscal rules must be simple, flexible and credible. Difficult to reconcile, these conditions can be approximated if statistics provide accurate measures of indicators targeted by fiscal rules. Any lacks in this balancing might affect the performance of fiscal rules in achieving fiscal discipline. Focusing on the Golden Rule (GR) of public finance and using United Kingdom data, this paper shows that the GR is neither simple nor clear since its target measurement is sensitive to national accounts methodologies. We also raise concerns on GR credibility as its forecast is accompanied by uncertainty depicted in a stochastic Vector Autoregression (VAR) analysis. The main results suggest that these sensitivities of the GR affect its performance as measured as the compliance with the GR.