IMF Working Papers

Fiscal Rules, Robust Correction Mechanisms, and Sovereign Spreads

By Julien Acalin, Leonardo Martinez, Francisco Roch

September 26, 2025

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Format: Chicago

Julien Acalin, Leonardo Martinez, and Francisco Roch. "Fiscal Rules, Robust Correction Mechanisms, and Sovereign Spreads", IMF Working Papers 2025, 195 (2025), accessed September 28, 2025, https://doi.org/10.5089/9798229025669.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Both policy advice and economic theory advocate for fiscal rules with a clear anchor that reflects fiscal risk and a robust correction mechanism that implements a more ambitious fiscal consolidation when fiscal risk is higher. However, among more than 120 countries with fiscal rules, only six are identified as implementing such robust correction mechanisms: Armenia, Costa Rica, Cyprus, Czech Republic, Poland, and Slovakia. Using synthetic control methods and dynamic panel regressions, this paper finds that the introduction of fiscal rules with robust correction mechanisms has been particularly effective in these countries, triggering a persistent median spread reduction of about 25 percent, or 75 basis points, over one year.

Subject: Fiscal policy, Fiscal risks, Fiscal rules, Public financial management (PFM)

Keywords: Czech Republic, Fiscal Risk, Fiscal risks, Fiscal rules, Fiscal Rules, Robust Correction Mechanisms, Sovereign Spreads

Publication Details

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