Does the Swiss Debt Brake Induce Sound Federal Finances? A Synthetic Control Analysis

The Swiss debt brake is widely appreciated as one of the most rationally designed fiscal rules in the world and was thus also discussed as a blueprint in the debates about fiscal rules in Germany, the European Union member states and Israel. However, evidence that this rule really contributes to sound federal finances, in the sense of reducing the cyclically adjusted deficits, does not exist yet. We investigate the effectiveness of the Swiss debt brake by employing the Synthetic Control Method. We find that the introduction of this fiscal rule improved the budget balance by about 3.7 percentage points on average in a post-intervention period covering five years.