Do Fiscal Councils Impact Fiscal Performance?

Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 1

35 Pages Posted: 3 Apr 2015

See all articles by Giovanni Coletta

Giovanni Coletta

Independent

Carmen Graziano

Government of the Italian Republic (Italy) - Department of the Treasury

Giancarlo Infantino

Government of the Italian Republic (Italy) - Department of the Treasury

Date Written: March 27, 2015

Abstract

The lack of budget transparency and projections accuracy have been among the determinants of the last four decades high deficit and debt, as the recent 2008-2009 economic crisis has highlighted. In order to improve fiscal policy process and budget transparency, the European Union (EU) stated more stringent fiscal rules monitored by Independent Fiscal Bodies, that have the capacity to “tie the hands” of policymakers tempted by deviations from socially optimal choices according to the academic circles.

The present paper aims at empirically verifying if Fiscal Councils (FCs) in Europe (as a complement or substitute for the Fiscal Rules - FRs) have an impact on Governments’ fiscal decisions and if this impact exists and is positive which feature of their functioning is relevant for their effectiveness.

The data elaborated with a panel regression model are the actual and foreseen (one year ahead) public finance and economic data of eleven European Countries1. The yearly planned change of the Cyclically Adjusted Budget Balance (CAB) 2 is interpreted as the discretionary fiscal policy and data about FCs and FRs are those of the European Commission (EC) Database on Fiscal Governance (data on fiscal institutions of the European database were opportunely adjusted, controlled and rebuilt for the missing years to construct the Fiscal Council Index - FCI).

This work (with the caveats related to the used data) provides empirical support for the hypothesis of a positive impact of FCs on fiscal performance; leading to the conclusion that if there are clear and strong FRs, the presence of fiscal institutions with solid basis in national institutional framework (strong legal basis) could positively affect political decisions.

Keywords: Financial crisis, fiscal policy, fiscal institutions, stability programs and convergence programs

JEL Classification: C33, E61, E62, H68

Suggested Citation

Coletta, Giovanni and Graziano, Carmen and Infantino, Giancarlo, Do Fiscal Councils Impact Fiscal Performance? (March 27, 2015). Government of the Italian Republic (Italy), Ministry of Economy and Finance, Department of the Treasury Working Paper No. 1, Available at SSRN: https://ssrn.com/abstract=2588436

Carmen Graziano

Government of the Italian Republic (Italy) - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy

Giancarlo Infantino

Government of the Italian Republic (Italy) - Department of the Treasury ( email )

Via XX Settembre, 97
Rome, 00187
Italy

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