Balanced budget amendment

A balanced budget amendment or debt brake is a constitutional rule requiring that a state cannot spend more than its income. It requires a balance between the projected receipts and expenditures of the government, and the balance requirement may be for each fiscal year or over a multi-year period.

Balanced-budget provisions have been added to the constitutions of Germany, Hong Kong, Italy, Poland, Slovenia, Spain and Switzerland, among others, as well as to the constitutions of most U.S. states. In the United States, proposals for balanced budget amendments to the United States Constitution have often had bipartisan support but have become more associated with the Republican Party in the 21st century.

Balanced budget amendments are defended with arguments that they reduce deficit spending and constrain politicians from making irresponsible short-term spending decisions when they are in office. Research shows that balanced budget amendments lead to greater fiscal discipline. However, there is substantial agreement among economists that strict annual balanced budget amendments have harmful near-term economic effects. In times of recession, deficit spending has significant benefits, whereas spending cuts by governments aggravate and lengthen recessions. To prevent that, most balanced-budget provisions make an exception for times of war, national emergency, or recession, or allow the legislature to suspend the rule by a supermajority vote. In 1995, such an amendment passed the US House and came within one vote of passing the Senate.

Alternatively, some balanced budget requirements and proposals target multi-year balance instead of annual balance. Structural balance—balance over the medium term—avoids the pro-cyclical features of an annual balance requirement and may allow adjustments for automatic changes in benefits programs known as automatic stabilizers.