Glossary Item

There are no such things as fiscal rules. There are instead fiscal choices.

However, many politicians, and most especially those who have responsibility for the finances of a jurisdiction, often claim that such rules exist. Those politicians create what they described as fiscal rules to justify the fiscal choices that they have made with regard to the macroeconomic options that are available to them.

So, for example, they might stay that the country for whose finances they are responsible will reduce its ratio of national debt as they define it to GDP  over a defined period of time.

Alternatively, they might claim that over a period time they will ensure that the expenditure of the government for which they are responsible will equal its taxation revenues.

Any politician has the right to suggest that they think such choices are a reasonable course of action for the government of which they are a part to follow, but this does not make them rules that must be followed. Nor are there any such rules that are imposed upon them: they are always a matter of choice.

Even when fiscal rules are elevated to international standards by organisations such as the European Union they still remain a matter of choice that the country that follows them is obliged to do as a consequence of their decision to belong to such an organisation rather than as a matter of any economic standard or law.

Fiscal rules should be seen as a consequence as a narrative that reinforces particular economic choices within the chosen economic framework that a government chooses to follow. They are in this context particularly popular with politicians of neoclassical or neoliberal persuasion because both argue that it is appropriate to restrict the amount of expenditure that a government might undertake, which restriction is a preference of those who follow those narratives. This does not, however, make them an economic necessity. They are always a choice.

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