The impact of fiscal rules on government debt: evidence from the CFA zone

This paper uses the difference-in-differences method and the synthetic control method (SCM) to estimate the effect of adopting numerical fiscal rules on the debt-to-GDP ratio of CFA zone countries. Using the SCM addresses the self-selection bias issue that has plagued previous studies on the impact of fiscal rules. The SCM compares the post-treatment trajectory of the treated CFA zone countries to that of a counterfactual constructed using similar but untreated donor countries. Our results show that, overall, adopting a stringent numerical debt rule is associated with a statistically significant decrease in the level of debt for CFA zone countries. The effect is stronger for West African CFA zone countries, suggesting that enforcement mechanisms and strong institutions are the key determinants of the de facto effectiveness of fiscal rules.