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Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies

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  • Xavier Debrun

Abstract

Despite growing interest among policymakers, there is no theory of independent fiscal institutions. The emerging literature on 'fiscal councils' typically makes informal parallels with the theory of central bank independence, but a very simple formal example shows that such a shortcut is flawed. The paper then illustrates key features of a model of independent fiscal agencies, and in particular the need (1) to incorporate the intrinsically political nature of fiscal policy - which precludes credible delegation of instruments to unelected decisionmakers - and (2) to focus on characterizing 'commitment technologies' likely to credibly increase fiscal discipline.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/173.

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Length: 86
Date of creation: 01 Jul 2011
Date of revision:
Handle: RePEc:imf:imfwpa:11/173

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Keywords: Central bank autonomy; Budget deficits; Budgetary policy;

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References

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  1. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence," IMF Working Papers 07/171, International Monetary Fund.
  2. Kenneth Rogoff & Anne Sibert, 1988. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  3. Bennett T. McCallum, 1995. "Two Fallacies Concerning Central Bank Independence," NBER Working Papers 5075, National Bureau of Economic Research, Inc.
  4. Alberto Alesina & Guido Tabellini, 2007. "Bureaucrats or Politicians? Part I: A Single Policy Task," Levine's Working Paper Archive 321307000000000870, David K. Levine.
  5. Robert J. Barro & David B. Gordon, 1983. "A Positive Theory of Monetary Policy in a Natural-Rate Model," NBER Working Papers 0807, National Bureau of Economic Research, Inc.
  6. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
  7. Alesina, Alberto & Tabellini, Guido, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Review of Economic Studies, Wiley Blackwell, vol. 57(3), pages 403-14, July.
  8. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  9. Bevger, H. & Haan, J. de & Eijffinger, S.C.W., 2000. "Central Bank Independence: An Update of Theory and Evidence," Open Access publications from Tilburg University urn:nbn:nl:ui:12-82768, Tilburg University.
  10. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, vol. 87(5), pages 911-20, December.
  11. Robert Hagemann, 2010. "Improving Fiscal Performance Through Fiscal Councils," OECD Economics Department Working Papers 829, OECD Publishing.
  12. Xavier Debrun & Laurent Moulin & Alessandro Turrini & Joaquim Ayuso-i-Casals & Manmohan S. Kumar, 2008. "Tied to the mast? National fiscal rules in the European Union," Economic Policy, CEPR & CES & MSH, vol. 23, pages 297-362, 04.
  13. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November.
  14. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March.
  15. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, vol. 54(5), pages 1099-1128, September.
  16. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
  17. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, vol. 51(2), pages 453-477, February.
  18. Francesca Castellani & Xavier Debrun, 2005. "Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation," International Finance, Wiley Blackwell, vol. 8(1), pages 87-117, 07.
  19. Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers 540, University of Oxford, Department of Economics.
  20. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  21. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
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Cited by:
  1. Xavier Debrun & Keiko Takahashi, 2011. "Independent Fiscal Councils in Continental Europe: Old Wine in New Bottles?," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 44-50, October.

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