This research is done by New Economic School-Georgia by financial support of Friedrich Naumann Foundation for Freedom South Caucasus office.

 A Brief Description of the Study of Importance of Fiscal Constraints

The 20th century became the era of big government. Government functions, expenditures and taxes dramatically increased. This led towards huge public debts and budgetary deficits. Fiscal discipline has fallen in most of the developed nations. 

In 1970s and 1980s some of the governments from New Zealand to Germany and Sweden started elaborating new fiscal rules that would maintain stricter discipline and responsibility of governments and their agencies.

The Maastricht Treaty of the European Union demanded from the governments of the Union to restrict budgetary deficits and public debts. Some of the post-soviet nations, like Estonia and Lithuania, implemented their own fiscal restraints even before joining the EU. The Switzerland confederal constitution contains the referendum requirements for expenditure and taxation rules. From 2013 Georgia also implemented constitutional restraints upon the government expenditure and taxation powers.

Fiscal discipline is important for healthiness of an economy, especially for a long run period. But more importantly it creates some guarantees of individual freedom. Fiscally restricted government has fewer chances to abuse its power. Moreover, it creates an additional barrier for a voting majority to oppress individuals or smaller groups of individuals who disagree with the majority's desires to increase government spending and taxes.

The experience shows that the most of the nations, which implemented expenditure constraints by their own will, have healthier fiscal positions. But it is evident that without restraints on the taxation powers it can be still politically attractive to evade the expenditure restriction rules. 

This type of constitutional constraints is even more essential in the countries of the post communism transition where the tradition of thorough monitoring of governmental activities and expenditures is still very weak. In these countries budgetary systems are usually based on favoritism, privileges and corruption. Therefore, they need even stronger restraints of governmental spending and taxing powers.

The goal of this research is to analyze such kind of constraints and the experiences of different nations and to offer solutions.