Fiscal Consolidation Across Government Levels - Part 2. Fiscal Rules for Sub-central Governments, Update of the Institutional Indicator

Fiscal rules that constrain sub-central government (SCG) budgeting are very common across the OECD, but there are substantial cross-country differences in their implementation and impact. This paper presents the 2011 update of the fiscal rules database established in 2005. As in 2005, budget balance objectives are the most common form of rule along with borrowing constraints, while limits on SCG expenditure are rare. Because of trade-offs between objectives that fiscal rules must cater to, cross-country variation in the value of the composite indicator is low. There is, however, much more variation in country scores for the individual objectives of fiscal rules. Despite the increased focus on sustainability in public finances over recent years, indicator values have changed little since 2005 except for a few countries. This suggests that the sub-central fiscal rules framework was in place well before the recent crisis struck.