The Impact of Fiscal Councils on Budgetary Policy
The Impact of Fiscal Councils on Budgetary Policy
In recent decades, industrialised countries exhibited a tremendous increase in public debt reaching levels which are considered as unsustainable. Already in the past decades, legislators in multiple industrialised countries proposed and introduced numerical fiscal rules in order to meet this long-run trend in increasing public debt. However, the effectiveness of fiscal rules in limiting public debt has been a matter of discussion among economists. One line of thought provides arguments against the stringency of fiscal rules as they may induce the administration to bypass imposed limits through creative accounting. Alongside to strengthening fiscal rules, the recent European reform measures therefore obliged ratifying Member States to introduce independent fiscal advisory councils as well. These shall guarantee the adherence to existing rules and their proper implementation. However, so far, there have been no studies testing empirically this prior. We therefore propose an empirical study using the newly introduced data set on fiscal councils from the IMF. The specific research questions to be addressed involve whether fiscal councils can individually contribute to a reduction in deficits as well as whether the presence of fiscal councils can strengthen the impact of fiscal rules.