Theory, Evidence and Institutions
10. 1. Fiscal rules and statistics* INTRODUCTION The pros and cons of ﬁscal rules have long been debated.252 On the one hand, ﬁscal rules are seen as a prevention device against opportunistic behaviour by policy makers and sharp discontinuities in public policies. On the other hand, rules are seen as a source of unnecessary rigidity in the budgetary process leading to sub-optimal outcomes.253 From the debate a trade-oﬀ emerged between enforceability and ﬂexibility. Enforceability increases with the simplicity of a rule whereas ﬂexibility decreases with it. Neither extremely complex nor extremely simple rules are desirable. In principle, the former can minimize distortions but are diﬃcult to enforce; the latter are easy to enforce but do not take into account all factors which are important to policy-making. The eﬀectiveness of rules crucially depends on the indicators they refer to. Not only has the indicator to be relevant in view of the purpose of the rule, it also has to be based on a transparent and unambiguous operational and statistical framework. This issue has not been adequately dealt with in the discussion on ﬁscal indicators, particularly in the EMU context. A vast literature stresses that the evaluation of all aspects of ﬁscal policy (e.g. macroeconomic eﬀects, size of discretionary policy measures, impact on national savings, ﬁscal sustainability) cannot be based on a single indicator. The analysis of each aspect of ﬁscal policy is best conducted with reference to a speciﬁc indicator.254 Experience highlights the possibility that policy-relevant indicators...
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