This paper was originally written before the COVID-19 crisis, and therefore it does not address the current challenges facing the Israeli economy due to this severe crisis. However, long-term processes that occurred before the crisis require a reassessment of the economic policies that had prevailed until then. We will refer to the current period in which dealing with the corona crisis is dominant as an unusual period in terms of economic policy and will focus on the day after.
Accordingly, the purpose of this paper is to put forward a new fiscal policy, intended to balance between maintaining fiscal discipline and providing an appropriate response to the needs of society in Israel. The proposed policy sets two targets, a debt-to-GDP target and a government expenditure-to-GDP target, which the government will have to set at the beginning of its term and will build the annual budget to ensure that they are achieved within a predetermined period of time. These targets will be inserted into two formulas, one for the expenditure rule and one for determining the size of the annual deficit, from which the size of the annual budget and the tax burden will be derived. 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.
