The definition of the fiscal discipline is about the revenues and budget balance including social security agencies, local governments, funds, capital and budgets. The fiscal discipline is very important due to four reasons. Firstly, it is related to the macroeconomic stability, when there is a strong public finance there is a low inflation and a sound balance of payment. Secondly, even though the monetary policy is successful and effective the consequence of the loose fiscal policy occurs under pressure. Thirdly, given the resource and distribution and economic growth, fiscal discipline helps in political decision making which is to focus on the effectiveness of taxation system and expenditure programs. Finally, it can meet the predicable or unpredictable fiscal pressures.
However, if the fiscal discipline works in a weak way or it does not work, the consequence of the indiscipline will lead an Unbalance between Public Revenue and Expenditure, which increase the borrowing need of public sector. As follows, the government needs threes methods to refinance.
Financing with tax, which means the tax charge will increase, and the short-term foreign capital will go up. Then it results in excessive increase of national currency.
Financing with borrowing, at the beginning the internal debt and the external debt increase followed by the boost in interest rates. At the end, it is the rent economy and decreasing of the investment.
Financing with Resources of Central Bank, firstly, it is the monetary expansion and inflation then the instability in payment balance.
In fact, whichever method the government uses; the result is the decrease in production, recession, stagflation, and decrease in employment and injustice in income distribution.
The rules of the fiscal policy usually set the numbers, targets, frames of some indicators who have the power to measure fiscal performance. It is a kind of regulation to control the amount of the composition of instruments of the voluntary and discretionary fiscal policy, such as budget deficit, primary surplus, and growth of debt, borrowing resources, taxes, taxation authority, and sorts of expenditure (Can 2007).