What are fiscal rules for? A critical analysis of the Argentine experience

This article undertakes a critical examination of the usefulness of fiscal responsibility laws in situations of institutional weakness. It analyses the case of Argentina, where prodigal use of fiscal rules (two different laws in just five years) contrasts with their limited effectiveness for fiscal policy sustainability and transparency, and it confirms that in situations of institutional weakness a fiscal responsibility law is unlikely to constrain government decision-making to the extent necessary to correct the behaviour of the public finances. The case of Argentina thus provides a warning for supporters of fiscal rules. When fiscal credibility is low and institutions weak, not only may such rules be fiscally ineffective, but non-enforcement may weaken yet further the fragile institutional context which made them so ineffective to begin with.