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The Role of Independent Fiscal Policy Institutions

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  • Calmfors, Lars

    ()
    (Institute for International Economic Studies, Stockholm University)

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    Abstract

    The paper analyses how independent fiscal watchdogs (fiscal policy councils) can strengthen the incentives for fiscal discipline. Several countries have recently established such institutions. By increasing fiscal transparency they can raise the awareness of the long-run costs of current deficits and increase the reputational costs for governments of violating their fiscal rules. Councils that make also normative judgements, where fiscal policy is evaluated against the government's own pre-set objectives, are likely to be more influential than councils that do only positive analysis. To fulfil their role adequately, fiscal watchdogs should be granted independence in much the same way as central banks. There are arguments both in favour and against extending the remit of a fiscal policy council to include also tax, employment and structural policies. Whether or not this should be done depends on the existence of other institutions making macroeconomic forecasts and analysing fiscal policy, the existence of institutions providing independent analysis in other economic policy areas, and the severity of fiscal problems.

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    Bibliographic Info

    Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 767.

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    Length: 38 pages
    Date of creation: 01 Sep 2010
    Date of revision:
    Handle: RePEc:hhs:iiessp:0767

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    Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
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    Related research

    Keywords: Fiscal Policy Council; Fiscal policy; Government policy;

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    References

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    1. von Hagen, Jurgen & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3259-3279, December.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2010. "From Financial Crash to Debt Crisis," NBER Working Papers 15795, National Bureau of Economic Research, Inc.
    3. Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers 540, University of Oxford, Department of Economics.
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The role of independent fiscal watchdogs
      by Economic Logician in Economic Logic on 2011-04-13 14:10:00
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    Cited by:
    1. Georgia Kaplanoglou & Vassilis T. Rapanos, 2011. "The Greek fiscal crisis and the role of fiscal governance," LSE Research Online Documents on Economics 36432, London School of Economics and Political Science, LSE Library.

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    1. Economic Logic blog

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