Research Insights: Can the Design of Fiscal Rules Help to Protect Productive Public Investment from Budget Cuts?
Peer Reviewed
Date issued
Jan 2021
Publication
Journal version
Subject
Fiscal Policy;
Public Investment;
Public Expenditure;
Government Budget;
Fiscal Consolidation;
Fiscal Rule
JEL code
H54 - Infrastructures • Other Public Investment and Capital Stock;
E32 - Business Fluctuations • Cycles;
H50 - National Government Expenditures and Related Policies: General;
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General;
H12 - Crisis Management
Category
Catalogs and Brochures
Flexible fiscal rules include mechanisms to accommodate unexpected/exogenous shocks. In countries without fiscal rules, or with rigid rules (i.e., rules without flexible features), public investment falls sharply during fiscal consolidation episodesby as much as 10 percent on average. The negative impact of fiscal consolidations on public investment disappears in countries using flexible fiscal rules.
