Fiscal Councils: Rationale and Effectiveness

April 8, 2016

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Format: Chicago

Roel M. W. J. Beetsma, and Xavier Debrun. Fiscal Councils: Rationale and Effectiveness, (USA: International Monetary Fund, 2016) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Central bank autonomy, Central banks, Fiscal councils, Fiscal policy, Fiscal rules, Public debt

Keywords: Africa, Central bank autonomy, Deficit bias, Expected utility, Fiscal councils, Fiscal policy, Fiscal rules, Global, Government maximization program, Government's competence, Government's prerogative, Incompetent government, Incumbent government, Independent fiscal institutions, Profligate government, Second period, Simple average, WP

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2016/086
Stock No:

WPIEA2016086
ISBN:

9781484322901
ISSN:

1018-5941

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