What Should Fiscal Councils Do?

47 Pages Posted: 4 Oct 2011

See all articles by Lars Calmfors

Lars Calmfors

Research Institute of Industrial Economics; IIES

Simon Wren‐Lewis

University of Oxford

Multiple version iconThere are 2 versions of this paper

Date Written: October 2011

Abstract

Fiscal watchdogs, so‐called fiscal councils, have been proposed as a method to counter deficit bias of fiscal policy. The paper analyses theoretically what role fiscal councils could play and surveys empirically the activities of existing councils. Case studies of the Swedish Fiscal Policy Council and the UK Office for Budget Responsibility are done. It is concluded that fiscal councils should be advisory, rather than decision‐making, and work as complements, rather than substitutes, to fiscal rules. Although no panacea, fiscal councils could play a useful role by at the same time strengthening fiscal discipline and allowing rules‐based fiscal policy to be more flexible. A key issue is their political fragility and how their long‐run viability should be secured. Three ways of guaranteeing their independence are suggested: (1) reputation‐building; (2) formal national rules; and (3) international monitoring.

Suggested Citation

Calmfors, Lars and Wren‐Lewis, Simon, What Should Fiscal Councils Do? (October 2011). Economic Policy, Vol. 26, Issue 68, pp. 649-695, 2011, Available at SSRN: https://ssrn.com/abstract=1938085 or http://dx.doi.org/10.1111/j.1468-0327.2011.00273.x

Lars Calmfors (Contact Author)

Research Institute of Industrial Economics ( email )

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IIES ( email )

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Simon Wren‐Lewis

University of Oxford

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