THE TAYLOR RULES*

1. Economic policy should aim to increase economic stability and economic growth.

2. Official finance should support good economic policy with strong ownership. It cannot substitute for bad economic policy.

3. Raising productivity growth is essential for reducing poverty. This requires economic freedom that eliminates impediments to efficient allocation of capital and labor and to the spread of technology.

4. The private sector—not the government—is the engine of economic growth.

5. The international financial system works better when official lending decisions and sovereign debt restructuring processes are predictable. This encourages more efficient movement of capital and a lower cost of capital.

6. Contagion is not automatic. It can be contained by good policy, by the dissemination of information, and greater predictability in the international financial system.

7. Loans should not be made when there is a high probability that they will be forgiven. Assistance for the poorest countries should be in the form of grants, not loans.

8. Development assistance must produce measurable results. All donors should set clear goals and guidelines. Success should be measured by whether these goals are timelines are met, not by the volume of disbursements.

9. Monetary policy should focus on price stability. Sound exchange rate policies support this objective, prevent crises, and allow adjustment throughout the global financial system.

10. Tax systems with broad bases, efficient administration, and low marginal tax rates are best to encourage both growth and sustainable public finances.

*A gift to John B. Taylor from the staff of International Affairs at the U.S. Treasury, April 2005