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Toward a Robust Fiscal Framework for Iceland; Motivation and Practical Suggestions

  • Anthony Annett
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    Expenditure in Iceland, especially related to the government wage bill, has tended to move in a procyclical manner, related to the fragmentation of political decision making. Iceland''s elevated macroeconomic volatility reinforces these tendencies, as large booms unleash greater fiscal pressures as well as procyclical revenue elasticities that magnify these underlying strains. To improve its fiscal framework, Iceland could look to the experience of countries like Belgium and the Netherlands. In particular, it could adopt binding nominal expenditure rules, independent forecasts, and use representative committees to lay out medium-term targets across different levels of government.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 07/235.

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    Length: 25
    Date of creation: 01 Oct 2007
    Date of revision:
    Handle: RePEc:imf:imfwpa:07/235
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    1. Stefania Fabrizio & Ashoka Mody, 2006. "Can budget institutions counteract political indiscipline?," Economic Policy, CEPR;CES;MSH, vol. 21(48), pages 689-739, October.
    2. Galí, Jordi & Perotti, Roberto, 2003. "Fiscal Policy and Monetary Integration in Europe," CEPR Discussion Papers 3933, C.E.P.R. Discussion Papers.
    3. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
    4. Alberto Alesina & Roberto Perotti, 1995. "Fiscal Expansions and Fiscal Adjustments in OECD Countries," NBER Working Papers 5214, National Bureau of Economic Research, Inc.
    5. Ernesto Talvi & Carlos A. Vegh, 2000. "Tax Base Variability and Procyclical Fiscal Policy," NBER Working Papers 7499, National Bureau of Economic Research, Inc.
    6. Anthony Annett, 2002. "Politics, Government Size, and Fiscal Adjustment in Industrial Countries," IMF Working Papers 02/162, International Monetary Fund.
    7. Lars Jonung & Martin Larch, 2006. "Improving fiscal policy in the EU: the case for independent forecasts," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 491-534, 07.
    8. Fabrizio BALASSONE & Maura FRANCESE, . "Cyclical Asymmetry in Fiscal Policy, Debt Accumulation and the Treaty of Maastricht," EcoMod2004 330600014, EcoMod.
    9. Lane, Philip R., 2003. "The cyclical behaviour of fiscal policy: evidence from the OECD," Journal of Public Economics, Elsevier, vol. 87(12), pages 2661-2675, December.
    10. Morris, Richard & Schuknecht, Ludger, 2007. "Structural balances and revenue windfalls: the role of asset prices revisited," Working Paper Series 0737, European Central Bank.
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