United Kingdom, where deficits during downturns are required to be compensated for by surpluses during upturns), or regard government spending on a multiyear basis (e.g. Canada, Denmark, Finland, and The Netherlands, where rules limiting government expenditure growth are set for more than one year at a time).

Some fiscal frameworks only provide for countercyclical fiscal responses during downturns (the “one-sided” type), such as in the European Union, while others mandate countercyclical responses in both good and bad times (the “two sided-type”), including Canada, New Zealand, Switzerland, Chile, and some European Union countries. Some frameworks are supported by the operation of stabilization funds (as in Norway and Chile) and in some cases the frameworks include rules for subnational governments (such as in Australia, Canada, Germany, Spain and Switzerland) or governments belonging to a community of nations (the European Union).

The particular economic and political circumstances of each country or community of countries are reflected in the specific framework features that have been considered convenient or necessary to signal the political commitment to fiscal discipline. In most cases the fiscal frameworks are enshrined in civil law or in the national constitution. Transparency and monitoring are ensured by requirements to report to the national legislature, or the European Commission in the case of EU countries. Some countries, particularly industrialized nations, have relied primarily on reputation-based sanctions<sup>7</sup> for noncompliance supported by high transparency and accountability standards. In the case of Latin America countries the long history of noncompliance with fiscal discipline and budget targets implies that reputation-based sanctions alone would not be effective and additional sanctions are required to promote sustainable fiscal policies, such as institutional sanctions for noncompliant subnational governments or personal sanctions for noncompliant government officials, incorporated in the FRLs in the cases of Brazil and Chile.

Evidence of the success of frameworks and rules for improving fiscal discipline and countercyclicality is presented in Table 2 for the same countries and groups included in Table 1. We present data on GDP growth and volatility, gross public debt-to-GDP ratios, the overall government balance, and country risk indicators. We compare the averages from five years before the establishment of fiscal rules with the averages for all years after the rule for which data are available. In the case of the country risk indicators shown in the table we compare five years before the rule, the year of the rule, and five years after the rule. We also use a relevant benchmark to compare performance in each case: we selected a benchmark for each comparable group of countries using available statistics from the World Development Indicator and World Economic Outlook databases.

In all the cases we observe that fiscal discipline was already improving before the frameworks and rules were established, which shows that some building of reputation with fiscal discipline becomes essential to make the frameworks and rules credible.

> 7 Reputation-based sanctions include the potential loss of credibility by government institutions and the loss of political support from certain constituencies or from the electorate at large.

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