The Swiss are renowned for crafting the finest watches in the world, such as the Patek Philippe. The Swiss are now credited with inventing the most effective fiscal rules in the world, the Swiss debt brake.

The debt brake was enacted as a constitutional fiscal rule through referendum in 2001, with support from 85 percent of Swiss citizens. Like many countries, the Swiss have encountered recessions accompanied by unsustainable growth in debt. The debt brake was enacted to impose more effective constraints on federal spending and restore sustainable levels of debt. Over the past two decades, the Swiss cut debt as a share of national income roughly in half. //

Like a Swiss watch, the debt brake has several parts that are synchronized to constrain fiscal policies. The most important part is a rule that constrains the growth in federal spending to the rate of growth in potential output. This means that in the long term the federal government cannot grow more rapidly than the private sector.

Another rule is designed to stabilize spending over the business cycle. The federal government can incur deficits in periods of recession but must offset those deficits with surplus revenue in periods of economic growth. The rules cap deficit spending. If the deficits exceed 6 percent of expenditures, the excess must be eliminated within the next three annual budgets by lowering the expenditure ceiling. A compensation account is used to track deficits and surpluses over time. //

The debt brake has fostered fundamental reforms in the budget process in Switzerland. Before the debt brake was enacted, the Swiss relied on a bottom-up approach to budgeting. Each ministry proposed its own budget, and these were then aggregated into a total budget. Bottom-up budgeting is biased toward deficit spending, as each ministry lobbies for its own programs. The debt brake requires top-down budgeting. The finance minister is now required to draft a budget that conforms to debt brake rules, and that budget is then broken down into separate budgets for each ministry. //

The Swiss debt brake has proven to be the most effective of the new generation of fiscal rules enacted in developed countries. The reason is that it replaces discretionary fiscal policies with rules-based policies. ///

It only works for a moral people who have s conscience.