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The Role of Independent Fiscal Policy Institutions

  • Calmfors, Lars

    ()

    (Institute for International Economic Studies, Stockholm University)

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    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.

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    File URL: http://su.diva-portal.org/smash/get/diva2:388833/FULLTEXT02
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    Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 767.

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    Length: 38 pages
    Date of creation: 01 Sep 2010
    Date of revision:
    Handle: RePEc:hhs:iiessp:0767
    Contact details of provider: Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
    Phone: +46-8-162000
    Fax: +46-8-161443
    Web page: http://www.iies.su.se/

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    1. 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.
    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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