From Wikipedia, the free encyclopedia
Type of official watchdog institution
A
fiscal council
is an independent body set up by a government to evaluate its
expenditure
and
tax policy
. Typically, councils are staffed by
economists
and
statisticians
who do not have the ability to set policy, but provide advice to governments and the public on the economic effects of
government budgets
and
policy
proposals. Some fiscal councils also provide
economic forecasting
. Fiscal councils evaluate government's
fiscal policies
, plans and performance publicly and independently, against
macroeconomic
objectives related to the long-term sustainability of public finances, short-to-medium-term macroeconomic stability, and other official objectives.
[1]
History
[
edit
]
Several fiscal councils arose following the
financial crisis of 2007?08
with the intention of avoiding
debt crises
and alleviating the problem of
deficit bias
, which is a tendency of governments to allow increasing long-term deficits.
[2]
Analysis from the
International Monetary Fund
proposes that deficit bias results from both voters and
policy-makers
? the former through imperfect information on budgets and neglect for future generations, and the latter through
imperfect information
,
information asymmetries
, electoral pressures, a
common-pool problem
among government agencies, and a combination over optimistic spending and growth projections.
[3]
Fiscal councils alleviate deficit bias by providing independent
non-partisan
estimates of government income, and by reminding the public of the government's
intertemporal
budget constraint.
[3]
The public will then, in theory, react to this information by supporting governments that deliver sustainable fiscal policies and electorally punishing governments that are fiscally irresponsible.
Fiscal councils, such as the United Kingdom's
Office for Budget Responsibility
, have been criticised for mostly advising from the perspective of
neoclassical economics
and advocating for balanced-budgets and
small government
, to the detriment of
heterodox economic
approaches based on the
real economy
and more interventionist
New Keynesian
approaches to the
business cycle
.
[4]
[5]
[6]
Deficit bias
[
edit
]
More countries in the world run budget deficits than not.
[7]
In the long term, a high budget deficit is unsustainable. High budget deficits have aggravated crises like the
European debt crisis
. Governments that are unsure of being re-elected may ignore the long-term consequences of fiscal deficits and use generous fiscal policy to increase their chances of re-election. Voters may favour fiscal deficits because they benefit from tax cuts and public spending increases, and only bear part of the cost, the rest being borne by future generations. Alternatively, electorates vote for deficits because they are not fully aware of the problem.
[8]
List of fiscal councils
[
edit
]
References
[
edit
]
- ^
Calmfors, Lars; Wren-Lewis, Simon (2011-04-21).
"What are fiscal councils, and what do they do?"
.
VoxEU.org
. Retrieved
2019-11-28
.
- ^
Weldon, Duncan
(2016-07-26).
Whatever happened to deficit bias?
. Bull Market. Retrieved 2020-03-14.
- ^
a
b
IMF (2013).
"The functions and impact of fiscal councils"
(PDF)
.
- ^
Labour and the politics of budget responsibility
. SPERI (2013-10-15). Retrieved 2020-03-14.
- ^
Skidelsky, Robert (2018).
Money and Government: The Past and Future of Economics
. Yale University Press. pp. 230?233.
ISBN
9780300240320
.
- ^
Mostacci, Edmondo (2016).
From the Ideological Neutrality to the Neoclassical Inspiration: The Evolution of the Italian Constitutional Law of Public Debt and Deficit
.
University of Genoa
.
- ^
"The World Factbook ? Central Intelligence Agency"
.
www.cia.gov
. Archived from
the original
on December 10, 2011
. Retrieved
2019-11-28
.
- ^
Krogstrup, Signe; Wyplosz, Charles (2009), Ayuso-i-Casals, Joaquim; Deroose, Servaas; Flores, Elena; Moulin, Laurent (eds.), "Dealing with the Deficit Bias: Principles and Policies",
Policy Instruments for Sound Fiscal Policies: Fiscal Rules and Institutions
, Finance and Capital Markets Series, Palgrave Macmillan UK, p. 5,
doi
:
10.1057/9780230271791_2
,
ISBN
978-0-230-27179-1