OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Is there a Case for Sophisticated Balanced-Budget Rules?

This paper reviews the arguments in favor of excluding investment from fiscal policy constraints (the adoption of a “golden rule”). The paper starts by reviewing the goals and motivations of fiscal policy rules. From this analysis, it is clear that answering the question of whether investment should be excluded from those constraints can only be done once the goals and logic of those constraints are made clear. The strongest arguments in favor of a “golden rule” are those of transparency and intergenerational fairness. Other arguments, such as the possibility that public investment pays for itself, do not receive strong empirical support. The paper concludes that for a policy rule to be sustainable and have enough political and public support, it is necessary to have a proper, transparent and, therefore, different accounting treatment for investment. Whether this implies that investment should be completely excluded from fiscal policy constraints is left as an open question.


Keywords: fiscal policy, business cycles, fiscal rules
JEL: E32: Macroeconomics and Monetary Economics / Prices, Business Fluctuations, and Cycles / Business Fluctuations; Cycles; H30: Public Economics / Fiscal Policies and Behavior of Economic Agents / Fiscal Policies and Behavior of Economic Agents: General
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