Policy Instruments for Sound Fiscal Policies: Fiscal Rules and Institutions (Finance and Capital Markets)

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. Machine generated contents note: List of Tables * List of Figures * Foreword * Acknowledgements * List of Contributors * Introduction J.Ayuso-i-Casals, S.Deroose, E.Flores& L.Moulin * PART I: FISCAL RULES AND INSTITUTIONS AS USEFUL DEVICES TO ADDRESS THE DEFICIT BIAS * Dealing With the Deficit Bias: Principles and Policies S.Krogstrup& C.Wyplosz * The Discipline-enhancing Role of Fiscal Institutions: Theory and Empirical Evidence X.Debrun & M.S.Kumar * The Surplus Factor T.Broesens & P.Wierts * Comments on Part I C.Martinez Mongay * PART II: FORMS OF GOVERNANCE, RULES AND INSTITUTIONS * The Design of Fiscal Rules and Forms of Governance in European Union Countries M.Hallerberg, R.Strauch & J.von Hagen * National Fiscal Institutions and the Stability and Growth Pact: Are 'Delegation States' at a Disadvantage? D.Hodson * Comments on Part II C.Wyplosz * PART III: SPECIFIC INSTITUTIONAL ARRANGEMENTS TO IMPROVE FISCAL POLICY * Rainy Day Funds: Can They Make a Difference in Europe? F.Balassone, D.Franco & S.Zotteri * Beyond the SGP: Features and Effects of EU National-level Fiscal Rules J.Ayuso-i-Casals, D.Gonzlez, L.Moulin & A.Turrini * Who Provides Signals to Voters About Government Competence on Fiscal Matters? The importance of independent watchdogs E.Stclebout-Orseau& M.Hallerberg * Optimal Debt Policy and an Institutional Proposal to Help in its Implementation;T.Kirsanova, C.Leith & S.Wren-Lewis * Comments on Part III T.Ter-Minassian * PART IV: COUNTRY SPECIFIC EXPERIENCES * The Swedish Budget 'Model': A Genuine Beauty or in Need of a Face Lift? R.Boije& J.Fisher * Fiscal Councils, Independent Forecasts and the Budgetary Process: Lessons from the Belgian Case I.Lebrun * Comments on Part IV L.Jonung * Notes * Bibliography * Index List of Tables * List of Figures * Foreword * Acknowledgements * List of Contributors * Introduction J.Ayuso-i-Casals, S.Deroose, E.Flores& L.Moulin * PART I: FISCAL RULES AND INSTITUTIONS AS USEFUL DEVICES TO ADDRESS THE DEFICIT BIAS * Dealing With the Deficit Bias: Principles and Policies S.Krogstrup& C.Wyplosz * The Discipline-enhancing Role of Fiscal Institutions: Theory and Empirical Evidence X.Debrun & M.S.Kumar * The Surplus Factor T.Broesens & P.Wierts * Comments on Part I C.Martinez Mongay * PART II: FORMS OF GOVERNANCE, RULES AND INSTITUTIONS * The Design of Fiscal Rules and Forms of Governance in European Union Countries M.Hallerberg, R.Strauch & J.von Hagen * National Fiscal Institutions and the Stability and Growth Pact: Are 'Delegation States' at a Disadvantage? D.Hodson * Comments on Part II C.Wyplosz * PART III: SPECIFIC INSTITUTIONAL ARRANGEMENTS TO IMPROVE FISCAL POLICY * Rainy Day Funds: Can They Make a Difference in Europe? F.Balassone, D.Franco & S.Zotteri * Beyond the SGP: Features and Effects of EU National-level Fiscal Rules J.Ayuso-i-Casals, D.Gonzlez, L.Moulin & A.Turrini * Who Provides Signals to Voters About Government Competence on Fiscal Matters? The importance of independent watchdogs E.Stclebout-Orseau& M.Hallerberg * Optimal Debt Policy and an Institutional Proposal to Help in its Implementation;T.Kirsanova, C.Leith & S.Wren-Lewis * Comments on Part III T.Ter-Minassian * PART IV: COUNTRY SPECIFIC EXPERIENCES * The Swedish Budget 'Model': A Genuine Beauty or in Need of a Face Lift? R.Boije& J.Fisher * Fiscal Councils, Independent Forecasts and the Budgetary Process: Lessons from the Belgian Case I.Lebrun * Comments on Part IV L.Jonung * Notes * Bibliography * Index . Cover......Page 1 Contents......Page 6 List of Figures......Page 8 List of Tables......Page 11 Acknowledgements......Page 13 Foreword......Page 14 Notes on the Editors and Contributors......Page 16 1 Introduction: The Role of Fiscal Rules and Institutions in Shaping Budgetary Outcomes......Page 18 Part I: Fiscal Rules and Institutions as Useful Devices to Address the Deficit Bias......Page 38 2 Dealing with the Deficit Bias: Principles and Policies......Page 40 3 The Discipline-Enhancing Role of Fiscal Institutions: Theory and Empirical Evidence......Page 68 4 The Surplus Factor......Page 106 5 Comments on Part I......Page 135 Part II: Forms of Governance, Rules and Institutions......Page 142 6 The Design of Fiscal Rules and Forms of Governance in European Union Countries......Page 144 7 National Fiscal Institutions and the Stability and Growth Pact: Are ‘Delegation’ States at a Disadvantage?......Page 166 8 Comments on Part II......Page 190 Part III: Specific Institutional Arrangements to Improve Fiscal Policy......Page 194 9 Rainy Day Funds: Can They Make a Difference in Europe?......Page 196 10 Beyond the SGP: Features and Effects of EU National-Level Fiscal Rules......Page 221 11 Who Provides Signals to Voters about Government Competence on Fiscal Matters? The Importance of Independent Watchdogs......Page 258 12 Optimal Debt Policy, and an Institutional Proposal to Help in Its Implementation......Page 273 13 Comments on Part III......Page 301 Part IV: Country-Specific Experiences......Page 306 14 The Swedish Budget ‘Model’: A Genuine Beauty or in Need of a Face Lift?......Page 308 15 Fiscal Councils, Independent Forecasts and the Budgetary Process: Lessons from the Belgian Case......Page 337 16 Comments on Part IV......Page 363 B......Page 366 E......Page 367 F......Page 368 G......Page 369 N......Page 370 P......Page 371 V......Page 372 W......Page 373 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.