The Impact of Post-2008 New-Generation Fiscal Rules on the Current Account Balance: A Generalized Synthetic Control Approach

This study investigates the impact of post-2008 new-generation fiscal rules on the current account balance to evaluate their effectiveness in reducing economic vulnerability. To overcome the causal identification limitations of traditional methods and the ambiguity between policy non-enforcement and Ricardian equivalence, this paper employs the Generalized Synthetic Control Method (GSCM). The empirical analysis uses a balanced panel of 111 countries (2000–2019) to independently evaluate the Balanced Budget Rule (23 countries) and the Debt Rule (19 countries). To accurately differentiate competing theories, a first-stage model assesses the primary balance to confirm de facto enforcement. Findings reveal that the Balanced Budget Rule and Debt Rule improve the current account balance by 4.7 and 3.4 percentage points of GDP, respectively. Both rules significantly enhance the primary budget balance, confirming their actual implementation. These findings robustly support the Twin Deficits hypothesis, reject Ricardian equivalence, and are confirmed through extensive robustness checks.