In this paper we put forward a new fiscal policy for Israel, intended to address the troubling gap between the remarkable success at the macro level of the prevalent economic policy, and the economic burden that weighs heavily on most households, especially on young families.
The proposed policy strives to balance the two central functions of government: financing and supplying public goods at an appropriate level, while maintaining strict economic stability and therefore fiscal discipline. For this purpose, the government will have to set two targets at the beginning of its term, a debt-to-GDP target and a government expenditure-to-GDP target, which it will undertake to achieve within a predetermined period of time (4-5 years).
These targets will be inserted into two new formulas for the fiscal rules, one for the expenditure rule (i.e., how much government expenditure will increase each year) and one for the annual deficit. The construction of the state budget each year in accordance with these rules will ensure that the targets are met, while implementing a transparent, responsible and balanced fiscal policy.
