THE IMPACT OF FISCAL RULES ON PUBLIC FINANCES

With the aim to assess the impact of fiscal rules on public finances, this study applies two empirical analyses to calculate it. First, we used the fixed effects and Sys-GMM methods to estimate the relationship between government revenues and expenditures and the relationship between the primary balance and lagged public debt on a panel basis. Afterwards, we first estimate these relationships for each country and each year and then, in panel, we try to investigate whether fiscal rules affect the fiscal sustainability coefficients by using time-varying coefficients. This analysis is performed for 106 countries, during the period between 1985 and 2021. We find that the expenditure rules, budget balance rules, and debt rules contributes to increasing fiscal sustainability by positively influencing the responsiveness of government revenues to government expenditures and of primary balance to the one-period lagged debt-ratio, whereas revenue rules have minimal impact. Data show us that the existence of one of these three first fiscal rules in a country indicates that there will be an effective improvement in fiscal sustainability. Moreover, the results suggest a null relation between real growth rate of GDP, current account balance and inflation and the response of government revenues to government expenditures and a positive impact of the real growth rate of GDP and current account balance on the response of primary balance to the one-period lagged debt-ratio while inflation rate seems not to have any impact.