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The Role of Independent Fiscal Policy Institutions

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  • Calmfors, Lars

    () (Institute for International Economic Studies, Stockholm University)

Abstract

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.

Suggested Citation

  • Calmfors, Lars, 2010. "The Role of Independent Fiscal Policy Institutions," Seminar Papers 767, Stockholm University, Institute for International Economic Studies.
  • Handle: RePEc:hhs:iiessp:0767
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    References listed on IDEAS

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    1. von Hagen, Jurgen & Wolff, Guntram B., 2006. "What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU," Journal of Banking & Finance, Elsevier, vol. 30(12), pages 3259-3279, December.
    2. 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.
    3. 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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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The role of independent fiscal watchdogs
      by Economic Logician in Economic Logic on 2011-04-13 19:10:00

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    Cited by:

    1. Kaplanoglou, Georgia & Rapanos, Vassilis T., 2011. "The Greek fiscal crisis and the role of fiscal governance," LSE Research Online Documents on Economics 36432, London School of Economics and Political Science, LSE Library.

    More about this item

    Keywords

    Fiscal Policy Council; Fiscal policy; Government policy;

    JEL classification:

    • A00 - General Economics and Teaching - - General - - - General
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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