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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: 15
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; fiscal policy; inflation; central bank; fiscal institutions; fiscal agencies; fiscal agency; fiscal discipline; monetary policy; public debt; fiscal rules; monetary fund; fiscal performance; budget balance; fiscal deficits; public finances; budget deficit; fiscal policy rules; budget constraint; fiscal authority; fiscal council; taxation; national fiscal rules; fiscal transparency; discount rate; fiscal policy decisions; tax revenues; fiscal rule; fiscal affairs department; excessive deficits; monetary target; fiscal affairs; fiscal profligacy; monetary aggregates; fiscal stance; intermediate monetary target; monetary institutions; fiscal frameworks; fiscal contract; budget constraints;

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  1. Simon Wren-Lewis, 2011. "Comparing the delegation of monetary and fiscal policy," Economics Series Working Papers, University of Oxford, Department of Economics 540, University of Oxford, Department of Economics.
  2. Alberto Alesina & Guido Tabellini, 2007. "Bureaucrats or Politicians? Part I: A Single Policy Task," American Economic Review, American Economic Association, American Economic Association, vol. 97(1), pages 169-179, March.
  3. 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, CEPR;CES;MSH, vol. 23, pages 297-362, 04.
  4. Berger, Helge & de Haan, Jakob & Eijffinger, Sylvester C W, 2001. " Central Bank Independence: An Update of Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 15(1), pages 3-40, February.
  5. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, American Economic Association, vol. 85(2), pages 207-11, May.
  6. Kenneth Rogoff & Anne Sibert, 1986. "Elections and Macroeconomic Policy Cycles," NBER Working Papers 1838, National Bureau of Economic Research, Inc.
  7. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(4), pages 589-610, August.
  8. Xavier Debrun & Manmohan S. Kumar, 2007. "The Discipline-Enhancing Role of Fiscal Institutions," IMF Working Papers 07/171, International Monetary Fund.
  9. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
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  11. Tabellini, Guido & Alesina, Alberto, 1990. "A Positive Theory of Fiscal Deficits and Government Debt," Scholarly Articles 3612769, Harvard University Department of Economics.
  12. International Monetary Fund, 2010. "A Historical Public Debt Database," IMF Working Papers 10/245, International Monetary Fund.
  13. Francesca Castellani & Xavier Debrun, 2005. "Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 8(1), pages 87-117, 07.
  14. Cukierman, Alex & Meltzer, Allan H, 1986. "A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 54(5), pages 1099-1128, September.
  15. Thompson, Earl A, 1981. "Who Should Control the Money Supply?," American Economic Review, American Economic Association, American Economic Association, vol. 71(2), pages 356-61, May.
  16. Beetsma, Roel M.W.J. & Debrun, Xavier, 2007. "The new stability and growth pact: A first assessment," European Economic Review, Elsevier, Elsevier, vol. 51(2), pages 453-477, February.
  17. Jensen, Henrik, 1997. "Credibility of Optimal Monetary Delegation," American Economic Review, American Economic Association, American Economic Association, vol. 87(5), pages 911-20, December.
  18. Charles Wyplosz, 2005. "Fiscal Policy: Institutions versus Rules," National Institute Economic Review, National Institute of Economic and Social Research, National Institute of Economic and Social Research, vol. 191(1), pages 64-78, January.
  19. Robert P. Hagemann, 2010. "Improving Fiscal Performance Through Fiscal Councils," OECD Economics Department Working Papers 829, OECD Publishing.
  20. Xavier Debrun & David Hauner & Manmohan S. Kumar, 2009. "Independent Fiscal Agencies," Journal of Economic Surveys, Wiley Blackwell, Wiley Blackwell, vol. 23(1), pages 44-81, 02.
  21. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(4), pages 1169-89, November.
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Cited by:
  1. Carlos Caceres & Serhan Cevik & Ricardo Fenochietto & Borja Gracia, 2013. "The Day After Tomorrow," IMF Working Papers 13/79, International Monetary Fund.
  2. 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, Ifo Institute for Economic Research at the University of Munich, vol. 9(3), pages 44-50, October.
  3. Xavier Debrun & Tidiane Kinda, 2014. "Strengthening Post-Crisis Fiscal Credibility: Fiscal Councils on the Rise — A New Dataset," IMF Working Papers 14/58, International Monetary Fund.

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