Beschreibung:
Fiscal authorities impose fiscal rules to achieve goals such as debt sustainability, avoiding fiscal procyclicality, and improving macroeconomic stability. Assessing the effectiveness of fiscal rules requires the construction of a counterfactual scenario depicting the situation in the absence of such a rule. This paper studies the performance of Chile’s cyclically-adjusted budget balance rule in the period 2001-2020 using the synthetic control method to build such a counterfactual scenario. We provide evidence that initial compliance with the rule helped attain the desired effects. Nevertheless, after the authority breached the rule in 2009, the economy has experienced worse outcomes under the rule than what the no-rule counterfactual scenario suggests