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Finance

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Economic structure

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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.

Fiscal policy --- Debts, Public --- Budget deficits --- Econometric models. --- Deficits, Budget --- Budget --- Deficit financing --- Debts, Government --- Government debts --- National debts --- Public debt --- Public debts --- Sovereign debt --- Debt --- Bonds --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Government policy --- Banking --- Banks and Banking --- Central bank autonomy --- Central Banks and Their Policies --- Central banks --- Debt Management --- Fiscal councils --- Fiscal Policy --- Fiscal rules --- Macroeconomics --- National Deficit Surplus --- Policy Coordination --- Policy Designs and Consistency --- Policy Objectives --- Public finance & taxation --- Public Finance --- Sovereign Debt --- Structure, Scope, and Performance of Government --- New Zealand

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