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Fiscal Councils; Rationale and Effectiveness

Author

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  • Roel M. W. J. Beetsma
  • Xavier Debrun

Abstract

The paper discusses the effectiveness of independent fiscal institutions—or fiscal councils—in taming the deficit bias that emerged in the 1970s. After a review of the main theoretical arguments and recent trends about fiscal councils, we develop a stylized model showing how a fiscal council can effectively mitigate the deficit bias even though it has no direct lever on the conduct of fiscal policy. We show that the capacity of the fiscal council to improve the public’s understanding of the quality of fiscal policy contributes to better align voters and policymakers’ incentives and to tame the deficit bias affecting well-intended governments. After mapping the model’s key features into a broad set of criteria likely to contribute to the effectiveness of a fiscal council, we use the 2014 vintage of the IMF dataset on independent fiscal institutions to assess whether existing institutions have been built to work.

Suggested Citation

  • Roel M. W. J. Beetsma & Xavier Debrun, 2016. "Fiscal Councils; Rationale and Effectiveness," IMF Working Papers 16/86, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:16/86
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    References listed on IDEAS

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    1. Kenneth Rogoff, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, Oxford University Press, vol. 100(4), pages 1169-1189.
    2. McCallum, Bennett T, 1995. "Two Fallacies Concerning Central-Bank Independence," American Economic Review, American Economic Association, vol. 85(2), pages 207-211, May.
    3. Milesi-Ferretti, Gian Maria, 2004. "Good, bad or ugly? On the effects of fiscal rules with creative accounting," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 377-394, January.
    4. repec:ifs:fistud:v:38:y:2017:i::p:667-700 is not listed on IDEAS
    5. Mauro, Paolo & Romeu, Rafael & Binder, Ariel & Zaman, Asad, 2015. "A modern history of fiscal prudence and profligacy," Journal of Monetary Economics, Elsevier, vol. 76(C), pages 55-70.
    6. Nerlich, Carolin & Reuter, Wolf Heinrich, 2013. "The design of national fiscal frameworks and their budgetary impact," Working Paper Series 1588, European Central Bank.
    7. Till Cordes & Tidiane Kinda & Priscilla S Muthoora & Anke Weber, 2015. "Expenditure Rules; Effective Tools for Sound Fiscal Policy?," IMF Working Papers 15/29, International Monetary Fund.
    8. Xavier Debrun & Tidiane Kinda, 2017. "Strengthening Post‐Crisis Fiscal Credibility: Fiscal Councils on the Rise – A New Dataset," Fiscal Studies, Institute for Fiscal Studies, pages 667-700.
    9. Adam S. Posen, 1995. "Declarations Are Not Enough: Financial Sector Sources of Central Bank Independence," NBER Chapters,in: NBER Macroeconomics Annual 1995, Volume 10, pages 253-274 National Bureau of Economic Research, Inc.
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    Cited by:

    1. repec:nwe:eajour:y:2017:i:3:p:379-389 is not listed on IDEAS
    2. Asatryan, Zareh & Debrun, Xavier & Heinemann, Friedrich & Horvath, Michal & Ódor, Ľudovít & Yeter, Mustafa, 2017. "Making the most of the European Fiscal Board," ZEW policy briefs 3/2017, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. repec:ksa:szemle:1732 is not listed on IDEAS

    More about this item

    Keywords

    Fiscal policy; Civil society organizations; Fiscal rules and institutions; Institutional framework; Econometric models; Fiscal policy; deficit bias; independent fiscal institutions;

    JEL classification:

    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus

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