2020/07/29 by Michele Salvi, Christoph A. Schaltegger, Lukas Schmid
Economics, Econometrics and Finance · Social Sciences · #Fiscal Policies and Political Economy #Fiscal Policy and Economic Growth #Local Government Finance and Decentralization
paper · doi:10.1111/kykl.12251
crossref issued 2020/07/29 · crossref published 2020/07/29 · crossref published-online 2020/07/29 · openalex publication_date 2020/07/29 · crossref created 2020/07/30 · crossref published-print 2020/11/01 · crossref deposited 2023/09/05 · openalex created_date 2025/10/10 · crossref indexed 2026/07/24 · openalex updated_date 2026/07/25
SUMMARY This paper studies the effect of the Swiss federal debt containment rule on public debt. Using the synthetic control method, we provide evidence that the introduction of the federal rule in 2003 has reduced public debt ratio in Switzerland by 2.5 percentage points on average until 2010. By exploiting possible mechanisms, we find no evidence that the reduction in debt ratio was driven by a debt relocation to sub‐government levels or cutbacks in investment expenditure. On one hand, we argue that the positive impact of the fiscal rule is based on its design features, namely its precise but cyclically adjusted target, the comprehensive scope to prevent budget loopholes, and the strict sanction mechanism. On the other hand, we also discuss the generalizability of our findings to other countries and contend that its direct democratic authorization has contributed to its political enforcement and viability.