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Three facts underlie the development of this website:

  • Governments suffer from a strong pro-spending bias. Creative spending financed by diffuse taxation (a little bit each from a lot of people) can win votes without costing many.  It is very difficult to engineer cutting spending so it that costs fewer votes than it wins.  So, it is hard for legislators to resist expanding the government.
  • Fiscal rules – formal restraints on spending level or growth – must be well designed to be effective, sustainable, and not undermine appropriate responses to genuine emergencies.
  • Some governments have spent themselves into financial trouble. A well-designed fiscal rule can be critical element of a strategy to gradually eliminate the default risk.

So, most governments would better serve their citizens if they are constrained by well-designed fiscal rules. vetfiscalrules.net aims to be the forum to propose and study fiscal rule proposals.  There are conversation forums to propose and discuss fiscal rule ideas.  You can start by examining past discussions, and consider adding to them; perhaps with a question.


 

The web site will be of particular interest to policy makers interested in the design of fiscal rules. It includes a ‘federal calculator’ and a ‘state calculator’. These calculators use a simulation model to measure the impact of alternative fiscal rule designs. A ‘Guide’ is provided to help policy makers use these calculators to study and design fiscal rules.  Policy makers can choose different policy parameters, including expenditure limits, a deficit/debt brake, tax rates, emergency funds, and capital investment funds. Users can do sensitivity tests to determine the impact of alternative economic conditions, including growth rates, interest rates, and business cycles.

The U.S., like other major debt countries, now faces a debt crisis. The web site includes a policy paper ‘Blueprint for Fiscal Sanity: A Rules Based Solution to the U.S. Debt Crisis’. The policy paper provides the rationale for new fiscal rules to address the debt crisis. The centerpiece of the fiscal rules is an expenditures limit. We propose a stringent spending limit to reduce the rate of growth in federal spending over the next two decades, similar to the spending limits enacted in other OECD countries. The spending limit must be combined with significant savings each year over the next two decades. The savings will require reform of entitlement programs. It will also require savings from other heterodox fiscal policies, including the privatization and sale of federal assets, and the devolution of federal programs to state and local government.

Solving the debt crisis will be a formidable challenge. The ‘Blueprint shows how the fiscal rules we designed can solve the debt crisis. The fiscal rules proposed in the ‘Blueprint’ are not the only solutions to the U.S. debt crisis. But we think that the fiscal rules we propose are, to use a phrase from Milton Friedman, some of the better ideas lying around. The ‘Blueprint’ will help policy makers understand how the simulation model and calculator can be used to design and measure the impact of alternative fiscal rules.

 

For deeper discussions of fiscal and economic outcomes of fiscal rules, vetfiscalerules.net publishes peer-reviewed academic journal articles in the Fiscal Rules Review.  For example, the FRR would publish articles that establish the values of the parameter used in the calculators.  A parameter value is a number that indicates the rate at which a factor yields an outcome.