In addition to covering rules with specific numerical targets fixed in legislation, consideration is also given to fiscal arrangements, in particular expenditure ceilings, as fiscal rules for which the targets can be revised as long as they are binding for a minimum of three years.
Thus, medium-term budgetary frameworks or expenditure ceilings that provide multiyear projections but can be changed annually are not considered to be rules.
Andrea Schaechter, Tidiane Kinda, Nina Budina, and Anke Weber who compiled data for an International Monetary Fund working paper titled Fiscal Rules in Response to the Crisis - Towards the 'Next-Generation' Rules, consider those fiscal rules that set numerical targets on aggregates that capture a large share of public finances - deficit, debt, expenditure or revenue - and at a minimum cover the central government level.
They identified four types of fiscal rules: Debt rules set an explicit limit or target for public debt in per cent of gross domestic product (GDP).
Budget balance rules constrain the variable that primarily influences the debt ratio and are largely under the control of policymakers. Such rules provide clear operational guidance and can help ensure debt sustainability.
Expenditure rules set limits on total, primary, or current spending. Such limits are typically set in absolute terms or growth rates, and occasionally in per cent of GDP with a time horizon ranging between three and five years.
Revenue rules set ceilings or floors on revenues and are aimed at boosting revenue collection and/or preventing an excessive tax burden.
The writers said that over the past two decades, fiscal rules have spread worldwide surging to 76 by end-March 2012.
- Source: http://www.imf.org/external/pubs/ft/wp/2012/wp12187.pdf