Operation and development needs of the public finance framework system

The aim of this research project is to produce information about the framework system. The project draws up a vision of what kind of development needs can be seen in Finland’s framework system and what concrete actions could be taken to respond to these.

The expenditure development and balance of Finland’s public finances are guided by the framework system for the state’s budget finances, voluntarily introduced by the governments, and the regulations governing the public finances of EU countries. Although efforts have been made to guide the economic policy of the member states with common fiscal policy rules for a long time, indebtedness has not decreased on average in the EU during economic booms and sufficient financial buffers have not been created for downturns.

Both Finland and Europe need fiscal policy rules in the future as well. The indebtedness of public economies must be reversed so that countries can afford to pursue active economic policy and crisis management in the future as well. Both the domestic expenditure framework and the regulation of the EU fiscal policy framework can support this goal. A comprehensive re-evaluation of the regulatory framework is necessary.

Information is collected based on the following research questions:

• What are the essential features of the system that regulates the development and balance of public finances in Finland and the role of the framework system in it?
• What are the corresponding systems in the comparison countries and their key differences compared to Finland?
• What shortcomings did the COVID-19 crisis highlight in the operation of the Finnish system, especially regarding strong economic shocks, and how could the system be developed in this regard?
• What needs for reform related to fiscal policy rules have emerged in the recent international debate and how do they relate to the Finnish system?
• What reforms have been implemented/initiated in Finland’s reference countries?
• How can the public investments especially related to the climate policy be adjusted to the current framework system and do they possibly cause system development needs?
• What kind of possible development needs does the funding of welfare areas cause in the framework system/public finance plan?
• What kind of development needs can be seen in the Finnish system and what concrete measures could be taken to respond to these?

The research project is implemented as a joint project of Etla and professors Vesa Vihriälä (University of Helsinki) and Iain Begg (LSE). Etla isresponsible for the project’s research work.