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Luc Eyraud, Andrew Hodge, Mr. John Ralyea, and Julien Reynaud

)? Should they include escape clauses or other design features? How should key parameters be computed? None of these questions have simple answers, and, although there is an extensive descriptive literature (for example, on Organisation for Economic Cooperation and Development [OECD] countries), little normative guidance is provided. This note discusses how to design subnational fiscal rules, including how to select them and calibrate them. 2 It expands on the guidance provided at the national level on rule selection and calibration in IMF (2018a) and IMF (2018b

Luc Eyraud, Andrew Hodge, Mr. John Ralyea, and Julien Reynaud
This note discusses how to design subnational fiscal rules, including how to select them and calibrate them. It expands on the guidance provided at the national level on rule selection and calibration in IMF (2018a) and IMF (2018b). Thinking on subnational fiscal rules is still evolving, including their effectiveness (for example, Heinemann, Moessinger, and Yeter 2018; Kotia and Lledó 2016; Foremny 2014), and this note only provides a first analysis based on international experiences and the technical assistance provided by the IMF. Main findings are summarized in Box 1. The note is divided into five sections. The first section defines fiscal rules. The second section discusses the rationale for subnational rules. The third section provides some guidance on how to select the appropriate rule(s) and whether they should differ across individual jurisdictions. The fourth section explores the issue of flexibility by looking at how rules should adjust to shocks. Finally, the last section focuses on the “calibration” of the rules.
Luc Eyraud, Andrew Hodge, Mr. John Ralyea, and Julien Reynaud

Front Matter Page How to Design Subnational Fiscal Rules A Primer NOTE 20/01 Front Matter Page Fiscal Affairs Department How to Design Subnational Fiscal Rules A Primer Prepared by Luc Eyraud, Andrew Hodge, John Ralyea, and Julien Reynaud INTERNATIONAL MONETARY FUND Front Matter Page ©2020 International Monetary Fund Cover Design: IMF Multimedia Services Composition: The Grauel Group HOW TO NOTE Fiscal Affairs Department How to Design Subnational Fiscal Rules: A Primer Prepared by Luc Eyraud, Andrew Hodge

International Monetary Fund. European Dept.

countries: An update .’ IMF Policy Paper, April . International Monetary Fund ( 2016 ). ‘ Fiscal Monitor. Debt: Use It Wisely .’ October . International Monetary Fund ( 2018 ). ‘ Fiscal Monitor. Capitalizing on Good Times .’ April . International Monetary Fund ( 2019 ). ‘ How to Design Subnational Fiscal Rules. A Primer .’ IMF Staff Discuion Note (forthcoming) . Ladner , A. , N. Keuffer , and H. Baldersheim ( 2015 ). ‘ Self-rule Index for Local Authorities ,’ European Commission Report (Release 1.0) . Martin , E. , I

International Monetary Fund. European Dept.
This Selected Issues paper analyzes France’s fiscal stance using a structural stochastic model. The theoretical model features a forward-looking benevolent government that needs to decide the optimal fiscal stance given the level of public debt, the cyclical position of the economy, and expectations about future shocks. This paper shows that a fiscal consolidation can help build buffers that could help France confront the next downturn from a stronger fiscal position. The analysis highlights that, on average, fiscal policy in France exhibited a deficit bias over the past four decades, being unable to react to either rising debt levels, or cyclical conditions. A model-based analysis further confirms that fiscal policy was generally looser than warranted by cyclical and debt sustainability considerations, and this is only partly due to the fact policymakers need to take decisions based on real-time output gap measures that are subject to uncertainty.
Mr. Hamid R Davoodi, Paul Elger, Alexandra Fotiou, Mr. Daniel Garcia-Macia, Xuehui Han, Andresa Lagerborg, Mr. Waikei R Lam, and Mr. Paulo A Medas

. Eyraud , Luc , Andrew Hodge , John Ralyea , and Julien Reynaud . 2020 . “ How to Design Subnational Fiscal Rules: A Primer ”, IMF How-to-Notes, February 2020 . Fatás , Antonio , and Ilian Mihov . “ The macroeconomic effects of fiscal rules in the US states .” Journal of public economics 90 , no. 1–2 ( 2006 ): 101 – 117 . Gbohoui , William and Paulo Medas . 2020 . “ Fiscal Rules, Escape Clauses, and Large Shocks ”, Special Series on Fiscal Policies to Respond to COVID-19 , International Monetary Fund , Washington, D

Mr. Hamid R Davoodi, Paul Elger, Alexandra Fotiou, Mr. Daniel Garcia-Macia, Xuehui Han, Andresa Lagerborg, Mr. Waikei R Lam, and Mr. Paulo A Medas
Adoption of fiscal rules and fiscal councils continued to increase globally over the last decades based on two new global datasets. During the pandemic, fiscal frameworks were put to test. The widespread use of escape clauses was one of the novelties in this crisis, which helped provide policy room to respond to the health crisis. But the unprecedented fiscal actions have led to large and widespread deviations from deficit and debt limits. The evidence shows that fiscal rules, in general, have been flexible during crises but have not prevented a large and persistent buildup of debt over time. Experience shows that deviations from debt limits are very difficult to reverse. The paper also presents evidence on the benefits of a good track record in abiding by the rules. All these highlight the difficult policy choices ahead and need to further improve rules-based fiscal frameworks.