The Role of Fiscal Rules and Their Effectiveness in Achievement of Macroeconomic Stability

Fiscal rules are restrictions on fiscal policy that governments impose by setting numerical restrictions on budget aggregates. The main reason why authorities introduce fiscal rules is the need to smooth out budget expenditures to ensure macroeconomic stability. In resource-rich countries fiscal rules are also designed to reduce the economy’s dependence on raw materials. This paper provides a comprehensive analysis of the role of fiscal rules and their effectiveness in achieving macroeconomic stability. The main conclusions from the literature are shown and our own analysis of the channels of influence of rules on the economy is carried out. It also demonstrates what features of fiscal rules exist in countries with rich natural resources and what rule designs these countries use. Finally, it analyzes recent rule trends and the risks to macroeconomic stability that countries may face if they do not fully return to rules after they are relaxed during the Covid-19 pandemic.