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Fiscal Rules and the Compliance debate: Why do Countries adopt Rules and fail to comply?

1 April 2020
Publication Type: Working Paper
Economic Theme: Public Finance
JEL Code: E62, H11, H60

We study the compliance with fiscal rules via various national numeric rules. Based on 20 sub-Sahara African countries with 57 fiscal rules in force from 1997 to 2016, our analysis identifies determinants among the rule specific characteristics, as well as their macroeconomic and political environments. To meet the objectives of our study, we employ a logistic model. Our analysis reveals that, while the average compliance rate is around 54 percent, there is significant heterogeneity among both individual rules and national compliance rates. The analysis shows that the debt rule has a higher probability of compliance compared to balanced budget and revenue rules, respectively. Furthermore, the analysis shows that rules supported with independent monitoring institutions, as well as those covering the central government, have a higher probability of compliance. Moreover, the findings show that GDP per capita and grants enhance the probability of compliance, while corruption increases a country’s probability of non-compliance. To address endogeneity that may arise in our analysis, we employ an IV Probit model, and our results still stand.

Series title: Working paper 815
1 April 2020
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