Rules-Based Fiscal Policy in France, Germany, Italy, and Spain.

In recent decades, France, Germany, Italy, and Spain'along with most industrial countries'witnessed a sharp rise in the size of government and a large accumulation of public debt. While the latter trend began to reverse under the constraints imposed by the Maastricht Treaty and the Stability and Growth Pact, public expenditure and debt remain high by international standards. These are well-recognized sources of concern to policymakers, especially as the rapid aging of the population increases spending on pensions and health care while reducing the labor force and therefore economic growth and the tax base. In practice, reducing public spending and government debt is politically difficult because the process inevitably leaves some groups worse off.1 To overcome these difficulties, an increasing number of countries have adopted formal fiscal rules, such as balanced-budget rules or multiyear frameworks that limit discretionary fiscal policy.2 The proponents of rules argue that the commitment to a medium-term plan for public finances makes it easier for fiscal authorities to withstand pressures for higher spending and delayed fiscal adjustment. Critics highlight that rules may constrain the ability of governments to run countercyclical fiscal policy and express skepticism on the effectiveness of rules, because of the scope left for creative accounting. This paper studies the design of fiscal rules and frameworks, with particular reference to France, Germany, Italy, and Spain. In different ways, these countries face substantial public finance challenges over the next decade: high levels of outstanding public debt (Italy in particular), the consequences of a rapidly aging population for future social spending, and the need to ensure adequate scope for reduction of the still-high tax burden while maintaining an adequate level of public sector capital spending.Daban Sanchez, Maria T. is the author of 'Rules-Based Fiscal Policy in France, Germany, Italy, and Spain.', published 2003 under ISBN 9781589062160 and ISBN 1589062167.