The Role of Independent Fiscal Policy Institutions
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.
|Date of creation:||01 Sep 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden|
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- von Hagen, Jürgen & Wolff, Guntram B., 2004.
"What Do Deficits Tell us About Debts? Empirical Evidence on Creative Accounting with Fiscal Rules in the EU,"
CEPR Discussion Papers
4759, C.E.P.R. Discussion Papers.
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- Hagen, Jürgen von & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 148, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
- von Hagen, Jürgen & Wolff, Guntram B., 2004. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Discussion Paper Series 1: Economic Studies 2004,38, Deutsche Bundesbank, Research Centre.
- Carmen M. Reinhart & Kenneth S. Rogoff, 2011.
"From Financial Crash to Debt Crisis,"
American Economic Review,
American Economic Association, vol. 101(5), pages 1676-1706, August.
- 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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