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The Role of Independent Fiscal Policy Institutions

Lars Calmfors ()
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Lars Calmfors: Institute for International Economic Studies, Stockholm University, Postal: Stockholm University, S-106 69 Stockholm, Sweden, http://people.su.se/~calmf/

No 767, Seminar Papers from Stockholm University, Institute for International Economic Studies

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.

Keywords: Fiscal Policy Council; Fiscal policy; Government policy (search for similar items in EconPapers)
JEL-codes: A00 E62 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2010-09-01
New Economics Papers: this item is included in nep-cba
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Citations: View citations in EconPapers (2) Track citations by RSS feed

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