Yet more on the fiscal rule

Reader "age" wrote the following comment on an end-March post on the fiscal rule:

Dear Sir, I am firmly convinced that a fiscal rule can be a very effective tool for fiscal discipline. As you mention in your note, the institutional setup is key to its success. Switzerland had a constitutional (!) borrowing constrained that was never applied. A better designed new fiscal rule changed everything, however. What changed was a binding annual ceiling for (cyclically adjusted) spending (based on cyclically adjusted revenue). There was not the possibility anymore of temporising. The rule also has a defined sanction mechanism which quickly enforces sanctions if deviations occur. A Swiss type rule (with some modifications) might be successful in Turkey too.

I honestly did not know anything about Switzerland's fiscal rule, but I had a quick look at it this morning. And as the reader notes, a rule based on spending, rather than the government deficit, could have worked better for Turkey, as I have argued before.

BTW, at the press conference for the Inflation Report a couple of weeks ago, CBT President Durmus Yilmaz noted that he expected the government's new fiscal rule to be agreed by the end of June 2010, and this timetable seems to be consistent with the Treasury's timetable. With fiscal worries high on the investors' agenda, even an ill-designed fiscal rule would be a boost, at least in the short-term, to Turkish assets. But I am not sure if the government will be able to deliver, especially since we are in May and the government is a political mess that will go all the way to a Referendum and Constitutional Court (if CHP keeps its promise to battle the AKP on all grounds).