Policy Instruments for Sound Fiscal Policies : Fiscal Rules and Institutions

This volume contributes to empirical research on the role of national fiscal rules and institutions in shaping fiscal policies. It provides original, policy-oriented analysis on a number of questions and gives illuminating conclusions about the devices which promote sound and sustainable policy. Contributors are leading experts. Front Matter....Pages i-xvi Introduction: The Role of Fiscal Rules and Institutions in Shaping Budgetary Outcomes....Pages 1-20 Front Matter....Pages 21-21 Dealing with the Deficit Bias: Principles and Policies....Pages 23-50 The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence....Pages 51-88 The Surplus Factor....Pages 89-117 Comments on Part I....Pages 118-123 Front Matter....Pages 125-125 The Design of Fiscal Rules and Forms of Governance in European Union Countries....Pages 127-148 National Fiscal Institutions and the Stability and Growth Pact: Are ‘Delegation’ States at a Disadvantage?....Pages 149-172 Comments on Part II....Pages 173-176 Front Matter....Pages 177-177 Rainy Day Funds: Can They Make a Difference in Europe?....Pages 179-203 Beyond the SGP: Features and Effects of EU National-Level Fiscal Rules....Pages 204-240 Who Provides Signals to Voters about Government Competence on Fiscal Matters? The Importance of Independent Watchdogs....Pages 241-255 Optimal Debt Policy, and an Institutional Proposal to Help in Its Implementation....Pages 256-283 Comments on Part III....Pages 284-287 Front Matter....Pages 289-289 The Swedish Budget ‘Model’: A Genuine Beauty or in Need of a Face Lift?....Pages 291-319 Fiscal Councils, Independent Forecasts and the Budgetary Process: Lessons from the Belgian Case....Pages 320-345 Comments on Part IV....Pages 346-348 Back Matter....Pages 349-356 Economic literature has extensively analysed how taxes, government spending and budget balances should be set over the cycle in order to ensure the conduct of an appropriate fiscal policy. However, experience has shown that governments do not always pursue sound and sustainable policies. Rather, they have a tendency to implement pro-cyclical policies, in both good and bad times, while debt ratios have increased in many countries over the past few decades due to protracted budgetary deficits. The causes of this deficit bias and the tendency to conduct pro-cyclical budgetary policies are related to the common pool problem, policy makers' short-term approach, and voters' fiscal illusion. These elements can lead to an inappropriate use of discretionary decision making and time-inconsistent fiscal policies, which is particularly worrisome in the context of EMU due to their potentially adverse spillover effects.- Policy makers and academics generally agree that the institutional setting of a country critically determines the quality of economic policy making. In particular, the elements that form domestic fiscal frameworks, namely fiscal rules and institutions and budgetary procedures, are key factors influencing the conduct of budgetary policy and limiting the emergence of a deficit bias and the implementation of pro-cyclical fiscal policies. This book focuses on two of these elements: numerical budgetary rules and independent fiscal institutions. The role of these institutional arrangements in shaping budgetary outcomes as well as some specific country experiences are analyzed and assessed throughout this volume, leading to conclusions on the instrumental character of these devices in promoting sound and sustainable fiscal policy