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Can fiscal sovereignty be reconciled with fiscal discipline?

Author

Listed:
  • George Kopits

    (Woodrow Wilson International Center for Scholars One Woodrow Wilson Plaza 1300 Pennsylvania Avenue NW 20004 Washington, D.C. USA)

Abstract

Over the past two decades, international bond markets have become the chief disciplinarian of fiscal policy, displacing the International Monetary Fund and the European Union in this role. This trend culminated in the wake of the global financial crisis, as countries that had indulged in moral hazard and fiscal profligacy during the Great Moderation were vulnerable to a sharp rise in sovereign risk premium and in some cases to loss of market access. The article compares the response of new governments in Hungary and United Kingdom to restore policy credibility. A major lesson is that governments that adopt a rules-based fiscal framework, including fiscal watchdogs and transparency norms, are far more successful in anchoring fiscal expectations and in achieving fiscal sovereignty than those that do not.

Suggested Citation

  • George Kopits, 2012. "Can fiscal sovereignty be reconciled with fiscal discipline?," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 62(2), pages 141-160, June.
    • Handle: RePEc:aka:aoecon:v:62:y:2012:i:2:p:141-160
    Note: An earlier version was presented at the Banca d’Italia Workshop on “Rules and Institutions for Sound Fiscal Policy after the Crisis”, held in Perugia, March 31–April 2, 2011. The author is grateful to two anonymous referees and workshop participants for comments, and to Peter Virovácz for computational assistance.
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    Citations

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    Cited by:

    1. George Kopits, 2014. "Ireland’s Fiscal Framework: Options for the Future," The Economic and Social Review, Economic and Social Studies, vol. 45(1), pages 135-158.
    2. Csaba, László, 2014. "A félig tele pohár [Glass - half full]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 439-451.
    3. Ondrej Schneider, 2019. "Partisan Fiscal Policy: Evidence from Central and Eastern Europe," CESifo Working Paper Series 8014, CESifo.
    4. Zachary Kramer, 2019. "Fiscal Sovereignty under EU Crisis Management: A Comparison of Greece and Hungary," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(4), pages 595-624, December.

    More about this item

    Keywords

    fiscal rules; sovereign risk; policy credibility; bond markets;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • H61 - Public Economics - - National Budget, Deficit, and Debt - - - Budget; Budget Systems
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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