The Swiss Debt Brake: How it Works and What Can Go Wrong

After a decade with large budget deficits, Switzerland introduced a debt brake in 2002. It is an expenditure rule with sets a limit on expenditure both during boom and during recession periods and applies to the federal budget and account. Judging from simulations using historical data, the mechanism works more or less as intended. There is a sanction mechanism present since deviations from the expenditure limit have to be corrected in the future. Short-term fixes are excluded to some degree since extraordinary revenue is not included in the mechanism. However, the debt brake has a number of weak spots which could lead to a failure to achieve the target of balanced accounts.