Returning to the Golden Rule of Balanced Budgets

The “golden rule” of public finance states that over an economic cycle, governments should borrow only to invest and not to fund current spending, and that the current budget must always balance or be brought into surplus. In Ontario, all municipalities are subject to legal borrowing limits, with special exceptions for Toronto and York Region.

Yet implementing the “golden rule” is not a simple question of setting limits to deficits and debt. Using the case of Switzerland, international expert and IMFG Visiting Scholar Bernard Dafflon presented new research and recommendations for budget management in the public sector.

How do we balance the needs of current expenditures with intergenerational equity? Does fiscal control over deficit or debt require top-down policies from higher levels of government, or is self-imposed control reasonable?

In the aftermath of the 2008 financial crisis, the issue of controlling public budget deficits and debt received renewed attention from both politicians and public finance economists. Around the world, detailed and precise regulations were imposed on how governments deal with public deficit and debt. This seminar demystified public sector budget management practices, and helped policymakers and the public better understand whether governments are promoting budget responsibility or not.