Independent Fiscal Councils: Neglected Siblings of Independent Central Banks? An EU Perspective

17 Pages Posted: 20 Feb 2018

See all articles by Martin Larch

Martin Larch

European Fiscal Board

Thomas Braendle

University of Basel - Department of Finance

Date Written: March 2018

Abstract

Governance of monetary and fiscal policy have followed diverging paths. Since the late 1980s monetary policy has been delegated to independent central banks. By contrast, fiscal stabilization remained in political hands but has progressively been constrained by rules; the Stability and Growth Pact in the EU is a prominent case in point. While delegation and independence eliminated the inflation bias, fiscal policy still suffers from a deficit bias as enforcement of rules remains difficult. A logical extension of all attempts to progressively tie the hands of politics would be to carve out the stabilization function from the broader field of fiscal policy and to delegate it to national independent fiscal councils. Apart from addressing the political economy behind the deficit bias, such a step would facilitate a better co‐ordination of macroeconomic policies in Economic and Monetary Union.

Keywords: independent fiscal councils, fiscal stabilization, independent central banks, fiscal rules, Economic and Monetary Union

Suggested Citation

Larch, Martin and Braendle, Thomas, Independent Fiscal Councils: Neglected Siblings of Independent Central Banks? An EU Perspective (March 2018). JCMS: Journal of Common Market Studies, Vol. 56, Issue 2, pp. 267-283, 2018, Available at SSRN: https://ssrn.com/abstract=3124618 or http://dx.doi.org/10.1111/jcms.12577

Martin Larch (Contact Author)

European Fiscal Board ( email )

Belgium
0032 2 2969244 (Phone)

Thomas Braendle

University of Basel - Department of Finance ( email )

Holbeinstrasse 12
Basel, CH-4051
Switzerland

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