The Fiscal Responsibility Law (FRL), approved in May 2000, imposes order and accountability on spending by the states through a general framework for budgetary planning, execution, and reporting, applicable to all levels of government. On revenues, the law mandates the withholding of discretionary federal transfers to states and municipalities that do not collect their own taxes effectively. This reinforces a constitutional amendment of 1993 that allows the federal government to withhold transfers to a state if it defaults on its obligations to the federal government. The FRL mandates the publication at every level of government of an analysis of the impact of tax exemptions in the year they take effect, as well as the next two years. The FRL also requires that governments match any permanent spending decision with a corresponding increase in permanent revenues (or a reduction in other permanent spending items).

The FRL has some noticeable consequences for the broader (“global”) policy- making process. In particular, it further weakens the power of governors to influence national policies, since it makes the states more responsible for their own fiscal problems, thus reducing their ability to hold the federal government hostage on fiscal grounds.