The Chilean budget for the year 2001 introduced a fiscal rule aimed at maintaining a structural fiscal surplus of 1 percent of GDP (there is, however, no law that forces the Chilean authorities to reach this target).^a Unlike a rule based on the actual fiscal balance, the Chilean rule makes it possible for the government to implement counter­cyclical policies because it permits the government to run deficits during recessions and requires surpluses during expansions. Formally, the Chilean rule can be described with the following equation:

where SBt is the structural budget balance,
Bt is the actual balance, Tt are net tax revenues, Yt is actual GDP, Y* is potential GDP, e is the output elasticity of tax revenues, ICt are the gross revenues of the state-owned company that controls copper production (CODELCO), and ICEt are the revenues of CODELCO that would prevail if the price of copper were at its medium-term level.

So far, the Chilean fiscal rule has worked well. While structural balances mimicked the actual balance before the adoption of the rule, since 2001 the average structural balance has been more or less constant at 0.9 percent of GDP, which has allowed the Chilean government to run effective deficits during periods of low growth and high surpluses during the more recent years characterized by sustained GDP growth and high copper prices, as shown in the figures to the left and on the facing page.