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Returning to the Golden Rule of Balanced Budgets: The Institutional and Political Economy of Restricting Public Deficits and Debt

Author

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  • Bernard Dafflon

    (University of Fribourg, Switzerland)

Abstract

In the aftermath of the 2008 financial crisis, both politicians and public finance economists focused their attention on ways to control public budget deficits and debt. Around the world, detailed and precise regulations affected how governments could deal with public deficit and debt. The “golden rule” of public finance states that governments should borrow only to invest and not to fund current spending, and that the current budget must always balance or show a surplus. Yet implementing the “golden rule” is not a simple question of setting limits to deficits and debt. Using the case of Switzerland, this paper presents the political and institutional economics of budget constraints and develops recommendations for budget management at the subnational government level. How do we balance the needs of current expenditures with intergenerational equity? Does fiscal control over deficit or debt require top-down policies from higher levels of government, or is self-imposed control reasonable?

Suggested Citation

  • Bernard Dafflon, 2018. "Returning to the Golden Rule of Balanced Budgets: The Institutional and Political Economy of Restricting Public Deficits and Debt," IMFG Papers 39, University of Toronto, Institute on Municipal Finance and Governance.
    • Handle: RePEc:mfg:wpaper:39
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    File URL: https://tspace.library.utoronto.ca/bitstream/1807/87874/1/imfgpaper_no39_goldenrulebalancedbudgets_bernarddafflon_may_15_2018.pdf
    File Function: First version, 2018
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    Cited by:

    1. Zack Taylor & Alec Dobson, 2020. "Power and Purpose:Canadian Municipal Law in Transition," IMFG Papers 47, University of Toronto, Institute on Municipal Finance and Governance.
    2. Melville McMillan, 2019. "Provincial Public Infrastructure Spending and Financing in Alberta: Searching for a Better Course," SPP Research Papers, The School of Public Policy, University of Calgary, vol. 12(10), March.

    More about this item

    Keywords

    budget management; budget rules; debt service; public deficit; sustainable indebtedness; public borrowing; subnational government debt;
    All these keywords.

    JEL classification:

    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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