Golden Rule
Candlefocus EditorThis rule allows the long-term investments of the public funds to generate returns and strengthen the public finances while minimizing public debt. In order to ensure that resources are managed optimally and to prevent the government from becoming overburdened with debt, the Golden Rule is used to prioritize spending and prevent over-borrowing.
The Golden Rule also allows a level of flexibility to address unforeseen economic emergencies. Recent examples such as the 2008 financial crisis and the 2020 COVID-19 pandemic, have forced governments to increase borrowing beyond what would normally be allowed, in order to provide short-term relief. The use of the Golden Rule can therefore provide some level of assurance that public funds are not indefinitely tied up in out of date infrastructure and that the burden does not outweigh the benefit to the population.
For governments, adopting the Golden Rule helps to ensure that resources are used efficiently and that the public purse is managed responsibly. While the U.S. government has yet to adopt it, the Golden Rule is an important part of maintaining a strong and healthy public finance system. Through informed decision making with regard to borrowing and spending it can help to ensure that public funds are used effectively, while providing protection against long-term debt burdens.