Government Spending Principles: Explanation, Usage, American Strategy
The golden rule of government spending, a fiscal policy principle that advocates for only borrowing to invest in projects that will create long-term benefits for the future, has been gaining traction in several countries across the globe. Notable adopters include Canada, New Zealand, Sweden, Switzerland, Germany, and the United Kingdom.
In these countries, the implementation of this rule has often required amendments to their constitution or statutes. For instance, the United Kingdom, under former Chancellor Gordon Brown, adopted a variant of the golden rule as part of its fiscal framework in 1997, with a focus on government borrowing being used solely for investment, not current spending. Germany, too, has a "debt brake" rule since 2011, which, while not identical, shares similarities with the golden rule by limiting structural deficits, except for investment. The Netherlands also incorporates golden rule principles into its budgetary frameworks.
However, the U.S. federal government has not adopted a fiscal policy reflecting the golden rule. The debt ceiling, the total amount of money the U.S. is authorized to borrow to meet its obligations, remains a separate matter.
The European Union (EU) has shown interest in the golden rule, adopting the Stability and Growth Pact (SGP) to monitor and stabilize the Economic and Monetary Union and coordinate fiscal policy among its members. The SGP incorporates elements of the golden rule. In 2020, the EU suspended the SGP borrowing limits until 2023 and proposed a further suspension through 2023. Some EU members are seeking further amendments to provide more flexibility in the future.
While explicit and formal adoption of the golden rule is relatively rare, countries like South Korea and Singapore are notable for their strategic government investments in technology, though without context indicating adherence to the golden rule. The golden rule's application varies from country to country, and it generally incorporates flexibility to address economic emergencies.
Interestingly, when adopted, the golden rule has led to a reduction in deficits as a share of GDP in some countries. However, the search results do not provide specific examples of countries that have formally adopted the golden rule.
It's worth noting that the golden rule of government spending is different from the ethical golden rule, "do unto others as you would have them do unto you." Under the golden rule, current expenditures should be financed through taxation, not by issuing new sovereign debt.
Despite the global trend towards the golden rule, the U.S. government has never defaulted on its debts, demonstrating a different approach to fiscal policy. This news article aims to provide a clear and concise overview of the golden rule of government spending, its adoption by various countries, and its implications for fiscal policy worldwide.
[1]: Lebanon Gold Reserves and Debt Retirement [2]: South Korea and Singapore's Government Investments [3]: Gold Standards and Fiscal Golden Rules [5]: U.S. Spending Control and Golden Fleece Award
In the European Union (EU), the Stability and Growth Pact (SGP) incorporates elements of the golden rule, aiming to monitor and stabilize the Economic and Monetary Union. [1]
Countries like South Korea and Singapore, known for their strategic government investments in technology, may be utilizing principles similar to the golden rule, but without a formal adoption of the policy. [2]
