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Conclusions
Fiscal measures do matter to ensure economic smoothing. While sound public finances define the scope for (discretionary) fiscal stimulus in general, automatic stabilizers hold an important macroeconomic stabilization function. As automatic stabilizers should not be restricted by a fiscal (rules) framework, the design of fiscal rules is crucial. Basically, structural budget balance rules could ensure all of the desirable properties, such as fiscal discipline, a pre-defined room for discretion and unlimited functioning of automatic stabilizers. Referring to the experience of implementing the SGP in the past, it seems to be preferable in terms of credibility to explore the existing flexibility of rules rather than to change rules periodically in case of any adjustment necessities.
From a longer term perspective, fiscal policy should be framed by fiscal rules, complemented by a well-designed institutional framework, where fiscal councils play a key role to safeguard sustainable public finances. In such a framework, an additional central fiscal capacity might counteract asymmetric shocks without violating fiscal rules. However, inherent moral hazard issues must be addressed. Hence, it is not an easy task to find the right balance between risk reduction and risk sharing, and public and private risk sharing.
Transparency of national budgets, simple and strict rules but still allowing for necessary stabilization measures as well as strong and independent monetary institutions and fiscal councils play a key role in ensuring sustainability of public finances.