Determinants of Expenditure Planned According to the Stabilizing Expenditure Rule. Evidence from Poland

Theoretical background: The main objective of expenditure rules is to limit expenditure growth to prevent excessive deficits and increases in public debt and to maintain long-term fiscal sustainability. In addition, their application stems from the obligation imposed on EU member states to comply with supranational rules by the Stability and Growth Pact (SGP). Expenditure rules at the national level complement the requirements of the SGP, (2024) in place in 15 EU countries. A stabilizing expenditure rule (SRW) has been in place in Poland since 2015. Purpose of the article: The purpose of the analysis presented here is to verify the fulfillment of the requirements for the SRW. Its implementation consists primarily of identifying the mechanism of action and the impact of the various determinants highlighted in SRW on the expenditure planned in the draft budget laws for 2015-2024. Research methods: Appropriate research methods were used to achieve the objective: analysis of Polish and foreign literature (publications, journals, scientific studies, reports of international institutions) and legal acts (Polish, EU, and selected countries' norms). In addition, the databases of the European Commission and the International Monetary Fund on fiscal rules were used. The impact of individual components of the expenditure fiscal rule on changes in expenditure was assessed using the method of indexed decomposition analysis. The application of this method makes it possible to determine to what extent the observed changes in expenditure planned according to the SRW between 2015 and 2024 are caused by their determinants. The empirical analysis is based on data officially published by the Ministry of Finance in Poland. Main findings: Changes in expenditure planned under the SRW for 2015-2024 were, to the greatest extent, due to assumptions on inflation (inflation forecasts or inflation target) and medium-term GDP dynamics and, to a lesser extent due to discretionary actions. They were constrained by the correction mechanism for public finance imbalances applied in selected years and other methodological changes related to the SRW. The analysis of historical data, parliamentary documents, and the results of the decomposition analysis indicate that the SRW meets most of its requirements. However, the numerous changes in the scope of the rule and other changes of methodological nature may raise some doubts as to whether the condition of not being subject to sibilant influences is met.