DP1831 Notes on 'A Code for Fiscal Stability'

Author(s): Willem H. Buiter
Publication Date: March 1998
Keyword(s): fiscal stability, golden rule, public sector balance sheet, public sector capital
JEL(s): E62, H62
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1831

This note comments on two central issues for fiscal policy design in the United Kingdom, highlighted in the recent ?Code for Fiscal Stability? proposed by the new Labour government. The first concerns the merits of the so-called ?golden rule of public sector investment? ? the proposition that, over the cycle, government borrowing should not exceed government capital formation. The second concerns the case for attempting to construct a more comprehensive balance sheet of public sector assets and liabilities, including tangible public sector assets and certain contingent claims. The two main conclusions are that the golden rule is without merit but that, subject to some important caveats, the construction of a more comprehensive government balance sheet is a worthwhile enterprise.