A Challenge for the G20: Globally Stipulated Debt Brakes and Transnational Independent Fiscal Supervisory Councils
AbstractDebt-to-GDP ratios have grown to unprecedented levels in many industrialized economies. This requires disciplined consolidation efforts which are, however, supposed to come now at the wrong time with the economic recovery being fragile. Against this background, we call for a global debt brake following the German example and discuss the political progress achieved at the most recent Euro and G20 summits. The agreement on the debt brake should be binding and hence be fixed in national constitutions and monitored by independent transnational fiscal councils. The fiscal councils could be located at the ESM and the IMF and should conduct a regular evaluation of national budget plans. In an economic and political environment which is characterized by large uncertainties concerning economic prospects and the fear of a potential spreading of the sovereign debt crisis, a global debt brake in combination with an independent transnational supervisory council would send a credible signal that a reduction of sovereign debt to sustainable levels is not further delayed into the future. The new fiscal policy framework thus leaves enough room for discretionary fiscal policy and the workings of automatic stabilizers in an economic downturn.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6160.
Length: 20 pages
Date of creation: Nov 2011
Date of revision:
Publication status: published in: Intereconomics, 2012, 47 (1), 31-38
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Other versions of this item:
- Dolls, Mathias & Peichl, Andreas & Zimmermann, Klaus F., 2011. "A Challenge for the G20: Globally Stipulated Debt Brakes and Transnational Independent Fiscal Supervisory Councils," IZA Policy Papers 33, Institute for the Study of Labor (IZA).
- H1 - Public Economics - - Structure and Scope of Government
- H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
- H6 - Public Economics - - National Budget, Deficit, and Debt
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-12-13 (All new papers)
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