## _071613

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### EXECUTIVE SUMMARY
- Rationale and functions of fiscal councils:
  - Independent public institutions promoting sustainable public finances through public assessments of fiscal plans and performance, and evaluation or provision of macroeconomic and budgetary forecasts.
  - Act as watchdogs to foster transparency and promote a culture of stability, raising reputational and electoral costs of undesirable policies.
  - Part of an “influence and persuasion” approach; enrich public debate through analysis, information, and advice but do not set policy instruments or have discretionary implementation power.

- Context and demand:
  - Interest surged after the 2008–9 crisis.
  - Treaty on Stability, Coordination and Governance mandates an “independent body” at national level (Article 3, par. 2) as of January 1 (year in source).
  - EU Directive on budgetary frameworks of November 2011 and the “two-pack” regulations impose similar requirements.
  - Parliamentary-nested examples: Australia, Canada. Emerging/developing examples: Croatia, Serbia, Romania, Kenya, South Africa.
  - Institutional arrangements must be tailored to binding capacity constraints in many developing and small advanced economies.

- Empirical approach and scope:
  - Statistical analysis based on a unique dataset of fiscal councils and selected case studies covering the global population of fiscal councils.
  - Paper informs: relevance, remit, specific tasks, facilitating characteristics, and prerequisites for effectiveness.

- Main conclusions on effectiveness:
  - Fiscal councils can promote stronger fiscal discipline if well-designed.
  - Key features associated with effectiveness:
    - A strict operational independence from politics.
    - Provision or public assessment of budgetary forecasts.
    - Strong presence in public debate via effective communication.
    - Explicit role in monitoring fiscal policy rules.
  - Remit, tasks, and institutional models should reflect country-specific characteristics.

- Policy implications and design considerations:
  - Fiscal councils are facilitators, not decision makers; they do not set fiscal policy instruments.
  - Can directly contribute to budget process by providing forecasts or assessments of structural positions.
  - Policymakers should assess prerequisites (strength of PFM, resource availability) and tailor remit/institutional form to national circumstances.
  - Paper provides operational guideposts on relevance, remit, tasks, characteristics, and prerequisites.

*EXECUTIVE SUMMARY — July 16, 2013*

### Definition, scope, and core functions
- Working definition:
  - "A fiscal council is a permanent agency with a statutory or executive mandate to assess publicly and independently from partisan influence government’s fiscal policies, plans and performance against macroeconomic objectives related to the long-term sustainability of public finances, short-medium-term macroeconomic stability, and other official objectives."
- Additional possible functions:
  - (i) contribute to the use of unbiased macroeconomic and budgetary forecasts in budget preparation,
  - (ii) identify sensible fiscal policy options and possibly formulate recommendations,
  - (iii) facilitate implementation of fiscal policy rules,
  - (iv) cost new policy initiatives.
- Core functions:
  - Independent analysis, review, monitoring of government fiscal policies, plans, and performance.
  - Developing or reviewing macroeconomic and/or budgetary projections.
  - Costing of budget and policy proposals.
  - Advising policymakers on policy options.
- Distinction from audit: councils are macroeconomic and forward-looking; audit is legal, micro-economic, and ex-post.
- Independence interpreted primarily as operational non-partisanship; benchmarking assessments against official policy objectives preserves legitimacy.

### Institutional models and governance diversity
- Three broad institutional models:
  - Stand-alone institutions (no organic link with policymakers beyond appointment and accountability).
  - Councils under executive or legislative branch (parliamentary budget offices; ministerial attachments).
  - Councils associated with other independent institutions (central banks, audit institutions, statistical agencies).
- Governance characteristics emphasized:
  - Degree of legal independence, safeguards on budget, accountability mechanisms, human and financial resources.

### Mapping, growth, and dataset
- Historical growth:
  - 1960: 1 active fiscal council (The Netherlands).
  - Additional countries over next three decades: Denmark, Germany, United States, Belgium.
  - Number surged after 2005, reaching 29 at end–January 2013.
- Examples of newcomers with start years where given:
  - Sweden Fiscal Policy Council (2007)
  - Canada Parliamentary Budget Officer (2008)
  - Slovenia Fiscal Council (2009)
  - Romania Fiscal Council (2010)
  - UK Office for Budget Responsibility (2010)
  - Portuguese Public Finance Council (2011)
  - Irish Fiscal Advisory Council (2011)
  - Kenya parliamentary budget office (2009)
  - Australia parliamentary budget office (2012)
  - Italy parliamentary budget office (2012)
  - South Africa parliamentary budget office (2013)
  - High Council of Public Finance in France (2013)
  - Chile established a fiscal council in 2013
  - Spain expected legislative work by year-end (2013)

- Fiscal Council Dataset variables (selected):
  - Legal independence: Yes: 1, No: 0.
  - Safeguards on budget: existence if budget is (i) set by central bank, (ii) part of overall legislative branch budget (protected), (iii) guaranteed by budget appropriations with separate line item, or (iv) subject to other guarantees.
  - Fiscal rules monitoring: Yes: 1, No: 0.
  - High media impact: IMF staff assessment based on publications and media references.
  - Forecasts provision/assessment: Yes: 1, No: 0.
  - Costing of measures: Yes: 1, No: 0.

### Variation in functions and remit over time
- Veterans vs new generation:
  - Newer fiscal councils more often explicitly tasked to monitor compliance with rules and to cost policy measures.
  - Majority (more than ¾) of new generation monitor compliance with fiscal rules — more than double compared to veteran institutions.
  - Costing of policy initiatives also more common among newer councils.
- Forecasting approaches:
  - Range from producing binding forecasts to technical review of budget assumptions.
  - Examples:
    - Netherlands: fiscal council prepares macroeconomic, revenue, and expenditure forecasts used by government.
    - Belgium: budget must be based on Federal Planning Bureau forecasts.
    - UK OBR: produces 5-year economic and fiscal forecasts; Treasury faces "comply or explain".
    - US, Canada, Denmark: forecasts serve as comparators to official projections.
  - Time horizons:
    - US CBO: typically 10 year forecasts.
    - British, Canadian, Korean, Dutch councils: long-term projections "(over 40 to 75 years horizons)".
- Costing:
  - Nearly half of fiscal councils involved in costing activities.
  - Parliamentary budget offices (Korea, Mexico, United States) perform extensive costing.
  - UK OBR reviews tax and spending estimates but "does not cost specific policy initiatives".
  - Australia and Netherlands assess economic and budgetary impact of political platforms prior to elections.
- Other roles:
  - Efficiency and effectiveness analysis (Korea NABO; Slovenia assessment).
  - Mandates covering subnational governments and public enterprises (Portugal, Austria, Belgium).
- No fiscal council has veto power to stall the budget process.

### Influence, channels, and access
- Primary influence through public reports and media impact.
- About one half of post-2005 councils hold formal consultations with government or hearings in Parliament regularly.
- Binding forecasts or "comply or explain" clauses remain rare.

### Independence, resources, and governance findings
- Legal independence protections more common among newer councils.
- Resource safeguards vary: separate budget line, multi-year appropriations, extra-budgetary financing (e.g., central bank funding in Austria and the Slovak Republic).
- Associations (matrix proportions preserved):
  - Legal independence with Safeguards on budget: 0.8
  - Legal independence with Compliance with rules: 0.9
  - Legal independence with High media impact: 0.8
  - Legal independence with Forecast assessment: 0.9
  - Safeguards on budget with Legal independence: 0.81
  - Safeguards on budget with Compliance with rules: 0.4
  - Safeguards on budget with High media impact: 0.8
  - Safeguards on budget with Forecast assessment: 0.7
  - Compliance with rules with Legal independence: 0.9
  - Compliance with rules with Safeguards on budget: 0.31
  - Compliance with rules with High media impact: 0.6
  - Compliance with rules with Forecast assessment: 0.6
  - High media impact with Legal independence: 0.8
  - High media impact with Safeguards on budget: 0.8
  - High media impact with Compliance with rules: 0.61
  - High media impact with Forecast assessment: 0.7
  - Forecast assessment with Legal independence: 0.9
  - Forecast assessment with Safeguards on budget: 0.7
  - Forecast assessment with Compliance with rules: 0.6
  - Forecast assessment with High media impact: 0.7

- Formal accountability frameworks are limited; regular hearings examples: Finland, France, Italy, Romania, Serbia.
- Appointment and decision mechanisms vary (executive appointments, parliamentary elections of members, head of state, central bank/audit office appointments). Decision rules include consensus, majority voting, and chair-dominant roles.

### Fiscal councils and fiscal rules: complementarity and sequencing
- Most countries with fiscal councils also have numerical rules (about 80 percent); councils mandated to monitor rules in about ¾ of cases.
- Establishment of councils tended to follow adoption of numerical rules; more than half created after 2005.
- EU recommendations: fiscal councils should assess conditions for activation of correction mechanisms and governments subject to "comply or explain" clauses.

### How fiscal councils complement fiscal rules
- Address “fiscal illusion” by informing and educating public and policymakers.
- Forecasting and costing close technical loopholes: overestimating revenues, underestimating expenditure, exploiting escape clauses.
- Provide unbiased inputs for sophisticated numerical rules (e.g., structural balance rules); ex-post assessments strengthen enforcement procedures.
- Fiscal rules facilitate councils' work by providing objective benchmarks.

### New councils: trends and models (excerpted list)
- Australia 2012 — Parliamentary Budget Office
- Chile 2013 — Parliamentary Budget Office
- Cyprus ongoing — Under the Executive (outsourcing considered)
- Finland 2013 — Existing Institution (Supreme Audit Office mandate expanded)
- France 2013 — Existing Institution (paired with Court of Audit)
- Ireland 2011 — Stand-alone Institution
- Italy 2013 — Stand-alone Institution
- Portugal 2011 — Stand-alone Institution
- Serbia 2011 — Stand-alone Institution
- Slovak Republic 2011 — Stand-alone Institution
- South Africa ongoing — Parliamentary Budget Office
- United Kingdom 2010 — Stand-alone Institution

### Emerging good practice and OECD Principles
- Convergence on remit, tasks, and some institutional arrangements.
- OECD Principles for Independent Fiscal Institutions codify broad guidelines.

### Effectiveness: Approach and indicators
- Effectiveness assessed via:
  - Statistical analysis with a new dataset.
  - Case studies (seven councils: Belgium HCF, Canada PBO, Hungary Költségvetési Tanács, Korea NABO, Netherlands CPB, Sweden Finanspolitiska rådet, United States CBO).
- Three proxy indicators:
  - Fiscal performance (level of the primary balance),
  - Media impact (number of quotes in press),
  - Quality of budgetary forecasts (bias and precision).

### Statistical/econometric findings (representative results preserved)
- Regression framework: panel regressions controlling for output gap, public debt, fiscal rule index from Schaechter and others (2012), and binary variables for council presence/characteristics.
- Main results:
  - Mere existence of a fiscal council: positive but not statistically significant relationship with stronger fiscal outcomes.
  - Council characteristics associated with significantly higher primary balances (marginal impacts reported in source):
    - Legal and/or operational independence (strong result when legal guarantees and adequate staffing are present).
    - Monitoring compliance with fiscal rules: coefficient 1.524 (2.80)***.
    - Costing of measures: coefficient 1.355 (2.57)**.
    - Forecast assessment: coefficient 1.293 (2.78)***.
    - High media impact: coefficient 0.904 (2.32)**.
    - Staff number (High level): coefficient 0.296 (2.34)** in one specification.
    - Fiscal council legal independence: coefficients reported 0.543 (1.42) and 0.930 (2.38)** in alternative specifications.
  - Fiscal Rules Index (FRI) positively associated with primary balances (representative values: 0.277; 0.275; 0.283; 0.249; 0.232; 0.289; 0.295; 0.280 across specifications).
- Sample and estimation:
  - Observations: 901
  - Countries: 58
  - Time period: 1990-2011
  - Estimator: Bias corrected LSDV dynamic panel model (Bruno, 2005)
  - Controls: lagged primary balance, lagged gross debt, output gap, time dummies
- Interpretation caveats:
  - Limited time span for many councils (more than half created after 2005).
  - Possible reverse causation and omitted variable biases acknowledged.
  - Results presented as robust conditional correlations; causal inference avoided.

### The media channel and forecasting results
- Media presence:
  - Measured as standardized filtered count of references in newspapers associated with fiscal policy keywords.
  - Independent councils have higher media presence z-score on average.
  - Councils in countries with more binding fiscal rules tend to be more present in the press.
  - Weak positive correlation between planned change in overall fiscal balance and media presence for the full dataset; case studies show more vocal activity around large slippages and key budget steps.

- Forecasting:
  - Countries with fiscal councils tend to have more accurate and less optimistic macroeconomic and budgetary forecasts, especially when councils are independent, have high media impact, are mandated to assess/produce forecasts, and monitor fiscal rules.
  - Forecast accuracy and bias measured for primary balance, cyclically-adjusted primary balance, real GDP growth.
  - Absolute forecast errors for these variables are systematically lower in countries with councils having selected characteristics.
  - Fiscal councils contribute to unbiased or slightly conservative forecasts for primary balances; countries without such councils have overoptimistic projections on average.
  - Real growth forecasts remain overoptimistic generally; smallest bias in real growth forecasts observed in countries with formally independent councils.

### Case studies: selected operational lessons and quantitative examples
- Case study countries: Belgium HCF; Canada PBO; Hungary Költségvetési Tanács; Korea NABO; Netherlands CPB; Sweden Finanspolitiska rådet; United States CBO.
- Resources and remit examples:
  - Sweden: staff of 5; overall cost about USD 1 million (including outsourcing).
  - United States CBO: staff of 240; budget of USD 45 million.
- Resourcing guidance (phrasing preserved):
  - Assessment of fiscal policy and compliance with rules: "relatively few resources, say 2 to 10 full-time professionals."
  - Assessing economic and fiscal forecasts: "can be done with a relatively small resource base; simple forecasting tools are sufficient."
  - Producing independent economic and fiscal forecasts: "experience suggest that fiscal councils involved in forecasting operate at the minimum over 20 professional staff."
  - Policy costing: "most resource intensive and time consuming remit requiring a larger staff base."
- Political interference risks:
  - Methods include cutting resources, controlling work program, delaying appointments, changing size and mandate.
  - Examples:
    - Hungary: mandate restricted and staff virtually eliminated in second year.
    - Belgium HCF: two-year delay in appointment of key members after recommendations at odds with government objectives.
    - Canada and Sweden faced budget threats after criticizing government policies.
- Communication and timing:
  - Strong media presence and effective timing (e.g., Dutch CPB around March and September; CBO around February and August) amplify influence.
  - Concentrated messaging on core remit increases impact; over-activity outside remit can dilute influence.
- Forecasting case specifics:
  - US CBO: two-year ahead real GDP forecasts — CBO slightly pessimistic bias vs administration slightly optimistic; CBO forecasts only marginally more accurate.
  - Sweden: pre-council average bias of 1.6 percent of GDP (pessimistic) moved to small optimistic bias of 0.2 percent after council introduction.
  - Canada: PBO forecasts from 2008 disciplined government forecasts toward greater accuracy and less pessimism.
- Costing:
  - Independent costing contributes to transparency and curbs underplaying of policy costs (Canada PBO; US CBO; Netherlands and Australia cost electoral platforms).

### Policy considerations and design guidance
A. Pre-requisites and enabling factors
- Solid Public Financial Management (PFM) systems and good statistical governance are key.
- Even with poor PFM, a fiscal council can foster reforms via monitoring execution, high-quality reports, and improved forecasts.
- Creating a council should be part of a well-sequenced PFM strategy; in some cases, stronger budget execution systems may have priority.

B. Remit and tasks
- Remit should be broad, clearly defined, and implementable.
- Minimum monitoring role should include:
  - Ex-ante assessment of consistency between fiscal plans and stated objectives.
  - Analysis of long-term sustainability (including medium to long-term risks).
  - Ex-post evaluation of fiscal performance against official aggregate objectives.
- Freedom to determine work agenda within remit is important.
- Mapping causes of deficit bias into tasks (summary):
  - Myopia/partisanship/overoptimistic forecasts: produce or assess unbiased macro-fiscal forecasts; cost measures; monitor rules.
  - Time inconsistency: examine fiscal outcomes vs commitments; monitor rules.
  - Common pool problems: analysis covering general government; recommendations on coordination.
  - Imperfect information/asymmetric information: analyze sustainability, fiscal risks; report to Parliament; raise public awareness.

C. Independence, funding, and channels
- Strict guarantees against political interference essential.
- Typical legal safeguards:
  - Prohibition on elected officials giving instructions.
  - Merit-based selection of senior management.
  - Appointment procedures minimizing partisan selection.
  - Long and non-renewable terms of office.
  - Own employment policy and clear dismissal procedures.
  - Legal guarantee of full access to government information.
- Funding options:
  - Separate line item in the budget.
  - Secured multi-year financing.
  - Off-budget financing (e.g., central bank mandated funding).
- Channels of influence provisions:
  a. Council should speak with one voice; chairperson should at minimum cast tie-breaking vote.
  b. Freedom to communicate to public clarified; obligation to publicize calendar of publications and press conferences.
  c. Direct inputs into budget process precisely defined; discretion to decline certain requests could be legally guaranteed; "comply-or-explain" clause recommended for forecast assessments.

D. Institutional models and hosting
- Prefer stand-alone institutions for legal and functional independence, recruitment/remuneration autonomy, and visibility.
- If attached to legislature or executive, explicit strict guarantees and secured resources are critical.
- Attaching to other independent institutions generally discouraged due to mandate confusion:
  - Hosting in audit office: ex-ante and ex-post tasks must be clearly defined and separated.
  - Hosting in central bank: should be avoided to prevent tainting of independence or perceived conflicts.
- Communication with other institutions:
  - Formal channels recommended; regular exchanges of methodologies and assessments with supranational bodies (e.g., European Commission).
  - National councils should be free to engage directly with supranational and international organizations.

E. Accountability and evaluation
- Fiscal councils should be accountable to political principal and broader public via:
  - Publication of comprehensive Annual Report.
  - Regular hearings before parliamentary committees.
  - Ex-post assessments and independent peer reviews or self-assessments.
- Independent evaluations:
  - Medium-frequency (3-5 years) Advisory Committee review recommended.
  - Low-frequency (5-10 years) ad-hoc thorough reviews recommended.
  - Oversight committees ideally composed of high-level experts, preferably foreigners appointed by the council.

### Limits and special contexts
- Councils should not be given veto rights or delegated fiscal powers.
- Federal/decentralized settings: councils should cover general government and monitor sub-national entities; recommend neutral analyses of intergovernmental transfers.
- Resource-rich countries: councils can help craft sustainable inter-generational expenditure paths and limit political manipulation of commodity cycles; option to devise “second-generation” fiscal rule incorporating these parameters.

### Empirical appendix: key statistics and correlations (preserved)
- Empirical model sample:
  - Observations: 901
  - Countries: 58
  - Time period: 1990-2011
- Representative coefficient estimates (Primary Balance in percent of GDP; absolute bootstrapped t-statistics in parentheses; significance levels as in source):
  - Primary Balance (t-1): 0.823; 0.824; 0.821; 0.821; 0.826; 0.826; 0.826; 0.824
  - Debt (t-1): 0.015; 0.017; 0.016; 0.023; 0.016; 0.016; 0.016; 0.017
  - Output Gap (t-1): -0.095; -0.094; -0.096; -0.091; -0.098; -0.095; -0.092; -0.093
  - Fiscal Rules Index (FRI): 0.277; 0.275; 0.283; 0.249; 0.232; 0.289; 0.295; 0.280
  - Fiscal council legal independence: 0.543 (1.42) and 0.930 (2.38)**
  - Staff number (High level): 0.296 (2.34)**
  - Fiscal rule monitoring: 1.524 (2.80)***
  - Costing of measures: 1.355 (2.57)**
  - Forecast assessment: 1.293 (2.78)***
  - High media Impact: 0.904 (2.32)**

- Forecast error regressions (sample: 26 countries; observations: 225):
  - Appendix Table 3 — Forecast Error (Primary Balance): Fiscal council: -0.783 (3.32)***; Legal independence: -0.911 (3.76)***; Independent budget: -0.821 (3.14)***; High media impact: -0.783 (3.32)***; Forecasts provision/assess: -0.863 (3.35)***; Fiscal rules monitoring: -0.653 (2.28)**. R2: 0.32.
  - Appendix Table 4 — Absolute Forecast Error (Primary Balance): Fiscal council: -0.813 (4.11)***; Legal independence: -0.857 (4.13)***; Independent budget: -0.576 (2.70)***; High media impact: -0.813 (4.11)***; Forecasts provision/assess: -0.770 (3.41)***; Fiscal rules monitoring: -0.549 (2.31)**. R2: 0.21.
  - Appendix Table 5 — Real Growth Forecast Error: Output gap: 0.377 (4.48)*** across specifications; Independent budget: -0.456 (1.73)* in one specification. R2: 0.60.
  - Appendix Table 6 — Absolute Real Growth Forecast Error: Fiscal council: -0.512 (2.48)**; Legal independence: -0.441 (2.02)**; Independent budget: -0.555 (2.52)**; High media impact: -0.512 (2.48)**; Forecasts provision/assess: -0.635 (2.88)***. R2: 0.48.

- Correlation matrix (selected variables):
  - Legal independence — Independent budget: 0.75*
  - Legal independence — Fiscal rule monitoring: 0.43*
  - Legal independence — Forecast assessment: 0.80*
  - Legal independence — High media impact: 0.89*
  - Independent budget — Fiscal rule monitoring: 0.39*
  - Independent budget — Forecast assessment: 0.65*
  - Independent budget — High media impact: 0.77*
  - Fiscal rule monitoring — Forecast assessment: 0.32*
  - Fiscal rule monitoring — High media impact: 0.61*
  - Forecast assessment — High media impact: 0.81*
  - * Significant at 1%

- Appendix notes on forecast measures:
  - Forecast error defined as difference between forecast of aggregate for t made in t-1 and outcome (estimate for t made in t+1).
  - Mean forecast error captures forecasting bias; mean of absolute value of forecast errors assesses forecast accuracy.
  - Sample for forecast analysis: 26 countries over 1998-2010.

### Key operational recommendations (concise)
- Ensure strict operational independence and legal safeguards against political interference.
- Provide or publicly assess macroeconomic and budgetary forecasts used for budget preparation.
- Explicitly mandate monitoring of compliance with numerical fiscal rules where these exist.
- Secure predictable funding commensurate with the remit (separate budget line, multi-year financing, or off-budget financing options).
- Tailor remit and institutional form to national capacities and political traditions; prefer stand-alone institutions where feasible.
- Maintain focused communication strategy with timely publications and press engagement around key budget steps.
- Establish formal accountability and periodic independent evaluations (medium-frequency 3-5 years; low-frequency 5-10 years).
- Avoid granting veto powers or delegating discretionary fiscal instruments to the council.
- In decentralized or resource-rich contexts, extend remit to general government and fiscal risk intergenerational analysis respectively.

*Excerpt from "THE FUNCTIONS AND IMPACT OF FISCAL COUNCILS" (International Monetary Fund) contained in the provided content unit.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Rationale and functions of fiscal councils
- Fiscal councils are independent public institutions aimed at promoting sustainable public finances through public assessments of fiscal plans and performance, and the evaluation or provision of macroeconomic and budgetary forecasts.
- They act as watchdogs that foster transparency and promote a culture of stability, thereby raising reputational and electoral costs of undesirable policies and broken commitments.
- Fiscal councils belong to the “influence and persuasion” approach to correcting fiscal policy biases (distinct from hard rules and from delegation to independent fiscal authorities). They enrich public debate through analysis, information, and advice but do not set policy instruments or have discretionary power to implement fiscal policy.

### Context and demand for fiscal councils
- Interest in fiscal councils has grown since the 2008–9 crisis as commitments to sustainable public finances came under close scrutiny.
- Institutional drivers and examples cited:
  - The Treaty on Stability, Coordination and Governance, which came into force on January 1 of this year, mandates an “independent body” at the national level to monitor compliance with national fiscal policy rules and produce (or at least assess or validate) macroeconomic and budgetary forecasts used for budget preparation in each euro area member state (Article 3, par. 2).
  - Similar requirements appear in the EU Directive on “requirements for budgetary frameworks” of November 2011 and one of the Regulations of the “two-pack,” which came into force at the end of May this year.
  - Examples of parliamentary-nested fiscal councils include Australia and Canada.
  - Emerging and developing economies with new or planned councils include Croatia, Serbia, Romania, Kenya, and South Africa.
- In many developing economies—and also in small advanced economies—institutional arrangements must be tailored to binding capacity constraints (human and financial).

### Empirical approach and scope
- The paper relies on statistical analysis based on a unique dataset of fiscal councils and on selected case studies.
- It covers the global population of fiscal councils and provides a consistent understanding of diverse experiences, institutional forms, and political and economic contexts.
- The paper aims to inform:
  - (i) the relevance of a fiscal council as a tool to foster fiscal performance in a specific country;
  - (ii) the adequate contours of a fiscal council’s remit for that country;
  - (iii) the specific tasks the council can be expected to perform;
  - (iv) the characteristics most likely to facilitate the council’s operation; and
  - (v) the prerequisites for its effectiveness, notably public financial management processes and availability of human and financial resources consistent with the council’s tasks.

### Main conclusions on effectiveness
- All else equal, fiscal councils can promote stronger fiscal discipline so long as they are well-designed.
- Key features associated with effective fiscal councils:
  - A strict operational independence from politics.
  - The provision or public assessment of budgetary forecasts.
  - A strong presence in the public debate, notably through an effective communication strategy.
  - An explicit role in monitoring fiscal policy rules.
- The remit, tasks, and institutional models should reflect country-specific characteristics, including available human and financial capacities, political traditions, and the specific causes for excessive deficits and debts.

### Policy implications and design considerations
- Fiscal councils are facilitators of sound public finances, not decision makers insulated from politics: they do not have discretion to set policy instruments, unlike independent central banks.
- Fiscal councils can directly contribute to the budget process (for example, by providing forecasts or assessments of structural positions), thereby helping to close technical loopholes that allow governments to circumvent numerical fiscal rules.
- When considering a fiscal council, policymakers should assess prerequisites and enabling factors (strength of public financial management, resource availability) and tailor remit and institutional form to national circumstances.
- The paper provides operational guideposts on: relevance, remit, tasks, characteristics to facilitate operation, and prerequisites for effectiveness.

*EXECUTIVE SUMMARY — July 16, 2013*

### 13.      A fairly broad definition of fiscal councils is required to accommodate the wide

### _071613 - 13.      A fairly broad definition of fiscal councils is required to accommodate the wide

### Definition and scope
- Consensus view: "a fiscal council is an independent public institution informing the public debate on fiscal policy."
- Paper's working definition:
  - "A fiscal council is a permanent agency with a statutory or executive mandate to assess publicly and independently from partisan influence government’s fiscal policies, plans and performance against macroeconomic objectives related to the long-term sustainability of public finances, short-medium-term macroeconomic stability, and other official objectives."
  - Additional possible functions (one or several):
    - (i) contribute to the use of unbiased macroeconomic and budgetary forecasts in budget preparation (through preparing forecasts, or proposing prudent levels for key parameters),
    - (ii) identify sensible fiscal policy options, and possibly, formulate recommendations,
    - (iii) facilitate the implementation of fiscal policy rules,
    - (iv) cost new policy initiatives.
- Independence interpreted primarily as guarantees of non-partisanship in performing tasks (operational independence), not necessarily strict legal separation.
- Fiscal council benchmarking: expected to benchmark assessments against official policy objectives to preserve legitimacy and non-partisanship.

### Key functions and distinctions
- Core functions emphasized:
  - Independent analysis, review, and monitoring of government fiscal policies, plans, and performance.
  - Developing or reviewing macroeconomic and/or budgetary projections.
  - Costing of budget and policy proposals, including possibly election platforms.
  - Advising policymakers on policy options (general or issue-specific recommendations).
- Distinction from audit:
  - Fiscal council work is macroeconomic and forward-looking; audit is mainly legal, micro-economic, and ex-post.
- Role in correcting biases:
  - Can curb budgets based on overoptimistic revenue forecasts and unrealistic cost estimates.
  - Biased forecasts reduce effectiveness of numerical fiscal rules and undermine transparency and accountability.
- Normative judgments:
  - A fiscal council can be mandated to formulate policy judgments and recommendations; useful where consensual decision-making benefits from neutral analysis.

### Institutional models and design diversity
- Three broad institutional models consistent with the definition:
  - Stand-alone institutions:
    - No organic link with policymakers beyond appointment and accountability; often accompany comprehensive Fiscal Responsibility Laws with explicit guarantees on independence.
  - Fiscal councils under executive or legislative branch:
    - Range from legally separate entities with strict guarantees to bodies integral to parliament (parliamentary budget offices) or ministries; may derive operational independence from reputational benefits.
  - Fiscal councils associated with other independent institutions:
    - Hosted in central banks, audit institutions, or independent statistical agencies; benefit from host independence and economies of scale but require clear procedures to avoid mandate confusion.
- Governance characteristics highlighted:
  - Degree of legal independence, safeguards on the council’s budget, accountability mechanisms, human and financial resources.

### Relationship with other institutions
- Other contributors to fiscal debate:
  - Central banks, audit offices, supranational and international organizations, private analysts (financial institutions, think tanks).
- Fiscal council’s unique position:
  - Official mandate to contribute to public debate and the budget process increases reputational impact, legitimacy, and potential for government to "comply or explain" despite lack of legal compulsion.

### Mapping, growth, and key statistics
- Historical growth:
  - In 1960 only 1 country (The Netherlands) had an active fiscal council.
  - Four additional countries over the next three decades: Denmark, Germany, the United States, and Belgium.
  - Number surged after 2005, reaching 29 at end–January 2013.
- Examples of newcomers (with start years where given in text):
  - Sweden Fiscal Policy Council (2007), Canada Parliamentary Budget Officer (2008), Slovenia Fiscal Council (2009), Romania Fiscal Council (2010), UK Office for Budget Responsibility (2010), Portuguese Public Finance Council (2011), Irish Fiscal Advisory Council (2011), parliamentary budget offices in Kenya (2009), Australia (2012), Italy (2012), South Africa (2013), High Council of Public Finance in France (2013), Chile established a fiscal council in 2013; Spain expected to complete legislative work by year-end (2013).
- Geographic distribution:
  - Most established fiscal councils are in advanced economies, particularly in Europe, with growing interest in emerging markets and developing economies.

### Fiscal Council Dataset (variables and coverage)
- Coverage:
  - Existing fiscal councils across the Fund’s membership, councils with primary legislative texts adopted as of end–January 2013, and those de facto or de jure eliminated.
  - Sources: fiscal responsibility laws, fiscal councils’ websites, IMF country papers, IMF desk economists, European Commission's Fiscal Institution Database, OECD background notes.
- Main variables used in descriptive and empirical analyses:
  - Independence:
    - Legal independence: The council’s independence from political interference is guaranteed by law (Yes: 1, No: 0).
    - Safeguards on budget: existence if budget is (i) set by the central bank, (ii) part of overall legislative branch budget (protected from executive decisions), (iii) guaranteed by budget appropriations with separate line item, or (iv) subject to other guarantees commonly granted to independent institutions.
  - Fiscal rules monitoring: council mandated to monitor compliance with numerical fiscal rules (Yes: 1, No: 0).
  - High media impact: IMF staff assessment based on number of publications, media references to reports, and for EU members, authorities' assessment in the Fiscal Institutions Database.
  - Forecasts provision/assessment: council mandated to provide or assess macroeconomic forecasts used for budgetary projections (Yes: 1, No: 0).
  - Costing of measures: council mandated to provide costing of measures and reforms affecting public finances (Yes: 1, No: 0).

*Source: IMF — THE FUNCTIONS AND IMPACT OF FISCAL COUNCILS (excerpts from the supplied PDF content).*

### 23.      While all fiscal councils identified for this study routinely perform broad oversight

### While all fiscal councils identified for this study routinely perform broad oversight functions, there is much more variation as regards the other functions described above.

### Variation in core functions
- The Netherlands Bureau for Economic Planning Analysis performs extensive forecasting and costing functions but "does not make judgments on the appropriateness of the government’s budgetary plans."
- The Swedish Fiscal Policy Council and the Irish Fiscal Advisory Council "engage in normative analysis, but do not produce their own forecasts or costing."
- Some countries have a division of labor between institutions: in Belgium the Federal Planning Bureau focuses on macroeconomic forecasts, whereas the High Council of Finance (Public Sector Borrowing Requirement Section) performs oversight, monitoring, and must provide policy recommendations including distribution of fiscal effort among central and subnational entities.

### Remit differences: veterans vs new generation
- Newly created fiscal councils are more often explicitly tasked to monitor compliance with fiscal policy rules and to cost policy measures.
- The majority (more than ¾) of the new generation monitor compliance with fiscal rules, "more than the double compared to veteran institutions."
- The costing of policy initiatives "has also become a more common feature among newer fiscal councils."
- Figure 2 summarized relative frequencies for: Positive analysis; Long-term sustainability; Forecast preparation or assessment; Normative analysis or recommendations; Compliance with rules; Costing of measures (Veterans vs New generation).

### Approaches to forecasting, projections, and costing
- Forecasting roles range from producing forecasts the government is obligated to use to mere technical review of budget assumptions:
  - The Dutch government uses macroeconomic, revenue, and expenditure forecasts prepared by the fiscal council.
  - Belgium’s budget must be based on macroeconomic forecasts from the Federal Planning Bureau.
  - The United Kingdom Office of Budget Responsibility (OBR) produces 5-year economic and fiscal forecasts; the Treasury faces a "comply or explain" clause.
  - In the United States, Canada, and Denmark, fiscal council forecasts serve as a comparator to official projections.
  - Elsewhere councils perform ex-ante and/or ex-post reviews of government forecasts; the Swedish fiscal council has "recently evaluated the quality of government forecasts."
- Time horizons:
  - The US Congressional Budget Office forecasts typically cover a 10 year period.
  - The British, Canadian, Korean and Dutch councils produce long-term projections "(over 40 to 75 years horizons)" often to analyze sustainability.
- Costing of policy measures:
  - Nearly half of fiscal councils are involved in costing activities.
  - Activities range from simple reviews of tax and spending estimates to extensive costing of specific policy initiatives.
  - Parliamentary budget office models (Korea, Mexico, United States) often perform extensive costing for bills and proposals.
  - Canada’s Parliamentary Budget Officer conducts only selected costing of bills and assesses government costing of existing programs.
  - The Dutch council responds to line ministry requests and provides cost-benefit analysis of major infrastructure projects.
  - The UK OBR "must review the tax and spending estimates produced by government ministries" but "does not cost specific policy initiatives."
  - Australia and the Netherlands assess "the economic and budgetary impact of political platforms prior to elections."

### Other functions beyond forecasting and costing
- Councils analyze efficiency/effectiveness of public expenditure and foster coordination across general government entities.
  - Korea’s NABO evaluates and "makes recommendations for improving the efficiency and effectiveness of government programs."
  - Slovenia’s Fiscal Council provides an annual assessment of the effectiveness of public spending.
- Several councils have mandates covering subnational governments and public enterprises:
  - Portugal’s Council on Public Finances (CPF) must assess autonomous regions, local governments, and public enterprises.
  - Austria’s Government Debt Committee analyzes "the effects of financial operations on the national economy in connection with the indebtedness of all the public authorities."
  - Belgium’s High Council of Finance makes recommendations on contributions of each government entity to comply with general government rules.
- No fiscal council has direct or indirect veto power that could stall the budget process.

### Influence, channels, and access to policymakers
- Fiscal councils primarily influence fiscal policy indirectly through public debate; all "prepare public reports that often have a significant media impact."
- Well-established councils are more likely to have a solid reputation for independence and professional competence than younger peers.
- Direct involvement via binding forecasts or "comply or explain" clauses is rare.
- Close to one half of post-2005 fiscal councils "hold formal consultations with the government or hearings in Parliament on a regular basis," providing more direct access to decision makers.
- Figure 3 summarized relative frequencies for tasks and channels: Public reports; High media impact; Binding forecasts; Comply or explain; Formal consultation or hearings; Can stall the budget process (Veterans vs New generation).

### Independence, resources, and governance
- Legal independence protections are common, especially among newer councils (Figure 4):
  - Protections include bans on political interference, strict requirements of professional proficiency and expertise for management and staff, non-renewable tenures exceeding the normal legislative term, and appointment procedures reducing politically-motivated appointments.
  - Legal independence implies freedom for the council to "undertake any analysis it deems necessary" and to choose its communication strategy.
- Resource safeguards:
  - Operational independence requires resources commensurate with the remit; councils lack significant own income and are vulnerable to politically-motivated budget cuts.
  - Pre-2005 councils are often larger in staff and have more protected budgets; budgets among older councils are "more likely to be protected from retaliatory cuts."
  - Guarantees on resources vary: separate budget line subject to Parliament vote, multi-year appropriations, or extra-budgetary financing (e.g., central bank funding in Austria and the Slovak Republic).
- Associations between independence, resources, tasks, and media impact (Table 1):
  - The vast majority of councils with protected budget allocations also have strong legal guarantees of independence and a high media impact (roughly 80 percent).
  - Only a minority of legally independent councils have resources protected from retaliatory cuts, though a comfortable majority have media impact.
  - Legal independence is frequently associated with involvement in forecasting and monitoring compliance with fiscal rules.
  - Table 1 matrix entries (proportions):
    - Legal independence with Safeguards on budget: 0.8
    - Legal independence with Compliance with rules: 0.9
    - Legal independence with High media impact: 0.8
    - Legal independence with Forecast assessment: 0.9
    - Safeguards on budget with Legal independence: 0.81
    - Safeguards on budget with Compliance with rules: 0.4
    - Safeguards on budget with High media impact: 0.8
    - Safeguards on budget with Forecast assessment: 0.7
    - Compliance with rules with Legal independence: 0.9
    - Compliance with rules with Safeguards on budget: 0.31
    - Compliance with rules with High media impact: 0.6
    - Compliance with rules with Forecast assessment: 0.6
    - High media impact with Legal independence: 0.8
    - High media impact with Safeguards on budget: 0.8
    - High media impact with Compliance with rules: 0.61
    - High media impact with Forecast assessment: 0.7
    - Forecast assessment with Legal independence: 0.9
    - Forecast assessment with Safeguards on budget: 0.7
    - Forecast assessment with Compliance with rules: 0.6
    - Forecast assessment with High media impact: 0.7
- Formal accountability frameworks are limited:
  - Only a minority of councils are subject to explicit accountability regimes (regular hearings, explicit reporting procedures, independent oversight including peer reviews or self-assessments).
  - Examples of regular hearings include Finland, France, Italy, Romania, and Serbia.
  - Peer reviews or self-assessments have been used in Canada, United Kingdom, and the Slovak Republic.
- Governance and appointment practices show no clear trend:
  - Management is often appointed by the executive, though some constraints exist (e.g., Sweden's outgoing chair proposes replacements to the Finance Minister).
  - A growing number of countries elect council members by parliament; some appointments are made by head of state or independent institutions (central bank or audit office).
  - Decision rules vary: many councils operate by consensus or majority voting; in a few cases members can publicly express dissenting views; in several parliamentary budget offices the chairperson has a dominant role.
  - Figure 5 summarized appointment and decision mechanisms: Government vs Parliament vs Other appointing authorities; Seniority of the chair; Collegial approach; Differing views.

### Fiscal councils and fiscal rules: complementarity and sequencing
- Fiscal councils are often used in combination with fiscal policy rules, "not as a substitute to them."
- Most countries with fiscal councils also have numerical rules (about 80 percent); among these, the council is mandated to monitor compliance with the rules in about ¾ of the cases (Figure 6).
- The establishment of fiscal councils has tended to follow the adoption of numerical rules:
  - More than half of the councils were created after 2005.
  - Only a handful of councils were created prior to numerical rules: Belgium, Denmark, Germany, Slovenia, The Netherlands, the United States, and Mexico.
  - These trends align with a shift toward more sophisticated fiscal rules (structural terms, escape clauses with technical conditions, automatic error-correction mechanisms).
  - The European Commission recommends that a fiscal council assess whether "the conditions warranting the activation of the correction mechanism" are met and that the government be subject to a "comply or explain" clause in these matters.
- Figure 7 illustrated sequencing between introduction of fiscal rules and establishment of fiscal councils.

*Source: Excerpt from "THE FUNCTIONS AND IMPACT OF FISCAL COUNCILS," IMF Fiscal Council Dataset and accompanying staff analysis in the supplied content.*

### 35.      A range of functions performed by fiscal councils can explain this revealed

### 35.      A range of functions performed by fiscal councils can explain this revealed

### How fiscal councils complement fiscal rules
- Fiscal councils help address “fiscal illusion,” which suppresses incentives to comply with rules by leaving the electorate with a poor understanding of the government’s budget constraint (i.e. the fact that current choices inevitably affect future policies). By informing and educating the general public and policymakers on the merits of sound public finances, fiscal councils can promote a stability culture and better align incentives between voters and representatives. 17
- Forecasting and costing functions of fiscal councils close technical loopholes commonly exploited by uncommitted governments to circumvent rules, including:
  - overestimating expected revenues,
  - underestimating planned expenditure,
  - unduly exploiting escape clauses.
- Fiscal councils provide unbiased inputs needed to implement more sophisticated numerical fiscal rules (e.g., structural balance rules). Ex-post assessments of compliance with such rules can strengthen explicit enforcement procedures, including sanctions. By promoting implementation of smarter rules that are immune from short-term partisan pressures, fiscal councils buttress the credibility and transparency of rules and favor broader adoption.
- A fiscal rule also facilitates the council’s work by providing an objective benchmark for assessments and avoiding the council having to choose its own benchmarks—provided the rule leads to sensible deficit trajectories given the council’s objectives and the country’s evolving economic situation.

### New fiscal councils: trends and institutional diversity
- The 2008–9 crisis increased the need to restore fiscal credibility and encouraged fiscal framework reforms; a recent surge of new fiscal councils aimed to improve budget preparation, implementation, and monitoring (examples cited: Ireland, Portugal, United Kingdom OBR, Serbia).
- Reform of the EU fiscal architecture and creation of national oversight institutions are accelerating fiscal council creation; creation of parliamentary budget offices in Australia and South Africa also noted.
- New fiscal councils remain highly diverse in institutional format, reflecting country-specific traditions and capacities:
  - mandates can be added to existing institutions (e.g., Finland: Supreme Audit Office; France: paired with Cour des Comptes with shared members while independence guaranteed by law),
  - reliance on existing institutions may be practical response to capacity constraints,
  - Cyprus considering outsourcing technical tasks to existing independent institutions depending on expertise.
- Table (excerpted list of new councils and institutional model by country and year as presented in source):
  - Australia 2012 — Parliamentary Budget Office
  - Chile 2013 — Parliamentary Budget Office
  - Cyprus ongoing — Under the Executive (outsourcing considered)
  - Finland 2013 — Existing Institution (Supreme Audit Office mandate expanded)
  - France 2013 — Existing Institution (paired with Court of Audit)
  - Ireland 2011 — Stand-alone Institution
  - Italy 2013 — Stand-alone Institution
  - Portugal 2011 — Stand-alone Institution
  - Serbia 2011 — Stand-alone Institution
  - Slovak Republic 2011 — Stand-alone Institution
  - South Africa ongoing — Parliamentary Budget Office
  - United Kingdom 2010 — Stand-alone Institution

### Emerging good practice and mandate convergence
- Despite diversity, emerging good practice is fostering convergence on key features of remit, tasks, and some institutional arrangements (EU law mandates specific tasks for national fiscal councils in Europe).
- OECD Principles for Independent Fiscal Institutions are the first attempt to codify broad guidelines based on case studies.

### The effectiveness of fiscal councils — approach
- Effectiveness is assessed via a combination of:
  - statistical analysis based on a new dataset,
  - lessons from selected case studies (contrasting new vs older agencies; successful vs less successful).
- Three indicators used to proxy effectiveness:
  - fiscal performance (level of the primary balance18),
  - media impact (number of quotes in the press),
  - quality of budgetary forecasts (bias and precision).

### Statistical analysis — key econometric findings
- Regression framework: panel regressions on advanced and emerging economies, controlling for output gap, public debt, and using binary variables (0-1) for presence of fiscal council or specific council characteristics; fiscal rule index from Schaechter and others (2012) used to capture how binding rules are.
- Main results:
  - Mere existence of a fiscal council is only loosely related to stronger fiscal outcomes: positive but not statistically significant (see Figure 8).
  - Certain council characteristics are associated with significantly higher primary balances (marginal impacts reported in source figure):
    - Legal and/or operational independence (strong result when legal guarantees and adequate staffing are present). Explicit safeguards on funding alone do not characterize the most effective councils.
    - Monitoring compliance with fiscal rules (positive and quantitatively large effect; complementarity between councils and rules suggested but interaction term did not yield meaningful econometric results19).
    - Assessing or producing forecasts (linked to preventing overoptimistic forecasts used to escape numerical rules).
    - Strong media presence (reputational and electoral impact matters).
  - Fiscal rules independently associated with higher primary balances: greater values of the fiscal rule index correlate positively with primary balances (see Figure 9). This supports the idea that a combination of a council and a rule may better serve fiscal discipline than either alone.

### The media channel
- Media presence is measured as a standardized and filtered count of references to the fiscal council in newspapers, requiring the reference to be associated with fiscal policy keywords (see Appendix II).
- Correlations and tentative conclusions:
  - Independent fiscal councils have on average a higher media presence z-score than others (Figure 10), suggesting credibility as a non-partisan watchdog is important for influencing public debate.
  - Fiscal councils in countries with more binding fiscal rules tend to be more present in the press (Figure 10), possibly because rules provide a simple benchmark for assessment and communication.
  - Evidence on whether councils focus communication on large fiscal developments is weaker for the full dataset: only a weak positive correlation between planned change in the overall fiscal balance and media presence (Figure 11). Case studies indicate councils may be more vocal around large slippages, announced fiscal stance changes, and key budget steps.

### Fiscal councils and forecasting
- Countries with fiscal councils tend to have more accurate and less optimistic macroeconomic and budgetary forecasts than others, especially when councils:
  - are independent,
  - have high media impact,
  - are mandated to assess or produce forecasts,
  - monitor compliance with fiscal rules.
- Forecast accuracy and bias measured for:
  - primary balance,
  - cyclically-adjusted primary balance,
  - real GDP growth.
- Evidence:
  - Absolute forecast errors for all 3 variables are systematically lower in countries with councils having selected characteristics (Figure 12).
  - Fiscal councils contribute to unbiased or slightly conservative forecasts for primary balances, whereas countries without such councils have overoptimistic projections on average (Figure 13).
  - Real growth forecasts remain overoptimistic generally; the presence of a fiscal council primarily encourages more conservative budgetary forecasts. The smallest bias in real growth forecasts observed in countries with formally independent councils. Potential explanations include easier detection of macro forecasts and greater transparency reducing incentives to deviate from ex-ante targets.

*Source: IMF staff assessment and estimates as presented in the source document.*

### 49.      Case studies are used to identify design and operational features that can

### Case studies are used to identify design and operational features that can

### Case study selection and purpose
- Case studies draw general lessons from seven fiscal councils: Belgium (Conseil Supérieur des Finances—HCF), Canada (Parliamentary Budget Officer—PBO), Hungary (Költségvetési Tanács), Korea (National Assembly Budget Office—NABO), Netherlands (Centraal Planbureau—CPB), Sweden (Finanspolitiska rådet), and the United States (Congressional Budget Office-CBO).
- Selection criteria: length of operation (at least three years); functions performed (at least two of the three core functions); and diverse regional and contextual environments (Asia, Europe, Western Hemisphere).
- Each case study examines how the council performs core functions and how it impacts the fiscal policy debate.

### Designing effective fiscal councils
- Institutional design must be adjusted to country-specific legal and political contexts and traditions; the US CBO has served as a model but countries adapted it differently.
- Examples of outcomes:
  - Korea and Mexico: PBOs are well established.
  - Hungary and Canada: faced challenges to their independence; Canada’s issues reflect difficulty transposing the CBO model to a parliamentary system.
- Drivers for creation vary: crises, wider political reforms, strengthening legislative oversight (presidential systems such as Korea and the United States), improving forecasts (United Kingdom), costing electoral proposals (Australia).
- Independence and legal basis:
  - Strong legal basis for independence helps new councils build reputational capital.
  - Belgian HCF and Dutch CPB have no or limited legal guarantees but operated independently in practice.
  - Sweden and Canada benefited from a strong legal basis for independence.
  - Ambiguities in mandate, guarantees of independence, or relationship with political principals must be avoided.

### Political interference
- Political interference methods: cutting resources, controlling work program, delaying appointments, changing size and mandate.
- Notable cases:
  - Hungary: mandate restricted and staff virtually eliminated in second year.
  - Belgium HCF: two-year delay in appointment of key members after recommendations at odds with government objectives.
  - Canada and Sweden: faced threats to their budget after criticizing government policies.

### Resources and remit
- Resources must be commensurate with remit and tasks; different tasks have different resourcing requirements.
- Illustrative examples and exact figures from case studies:
  - Sweden: fiscal policy assessments performed by a staff of 5 at the overall cost of about USD 1 million (including outsourcing of some background studies).
  - United States CBO: staff of 240, and a budget of USD 45 million to prepare costing of legislative proposals in addition to fiscal policy analysis, forecasts and long-term sustainability assessments.
- Broad principles and quantitative ranges (preserve phrasing exactly):
  - Undertaking an assessment of fiscal policy, including compliance with fiscal rules, demands relatively few resources, say 2 to 10 full-time professionals.
  - Assessing economic and fiscal forecasts can be done with a relatively small resource base; simple forecasting tools are sufficient to raise alarms when government budgetary forecasts seem out of line.
  - Producing independent economic and fiscal forecasts: experience suggest that fiscal councils involved in forecasting operate at the minimum over 20 professional staff.
  - Policy costing: most resource intensive and time consuming remit requiring a larger staff base with expertise in revenue and expenditure policies; resourcing needs can be reduced through data and model sharing agreements with government agencies (example: Australia).
- Note on budgets: in Belgium, the Netherlands and Sweden the budget is part of the Ministries of Finance budget. In Korea, Canada and the United States, the council’s budget is part of the legislature’s budget.

### Operational lessons
- Non-partisan credentials matter; bipartisan political support for creation reduces subsequent partisan threats.
  - Hungary: lack of strong bi-partisan support for the 2008 fiscal responsibility law partly related to reform in 2010.
  - Sweden: initial lack of opposition support, but council quickly established independence through normative analysis critical of government.
  - Dutch CPB and US CBO: sought to avoid normative analysis; CBO’s neutral position helped build reputation of non-partisanship.
- Media presence and communication:
  - Strong media presence important to communicate assessments and to raise alarm when budgets, forecasts, or policies are off course.
  - Dutch CPB example: increased public activity and spikes in media reports at times when fiscal policy was going off course.
  - Effective timing: Dutch CPB interventions concentrate around March and September reports; CBO interventions focus around press briefings in February and August when budget and economic outlook updates are released. Director and staff accessibility for journalists aids understanding.
- Concentration of messaging:
  - Too many media interventions on topics outside the immediate remit can dilute impact; focused interventions when they matter most strengthen influence.

### Assessment of fiscal policy and benchmarks
- Councils have stronger impact when combined with political and public consensus on sound public finances.
  - Sweden and Canada: public consensus on sound public finances stemming from 1990s crises; Netherlands similar.
  - Belgium: HCF influential during fiscal convergence to enter the euro area in 1999, influence weakened thereafter.
- Clear benchmarks (fiscal rules or public commitments) increase traction of councils.
  - Examples: Swedish expenditure ceilings, SGP deficit ceilings, Dutch coalition agreement deficit ceilings.
  - Absence of medium-term political commitments on fiscal outcomes has limited CBO’s capacity to influence fiscal restraint.

### Forecasting: accuracy and biases
- Case studies support econometric findings that fiscal councils have more accurate forecasts with cross-country variations.
- United States forecasting summary (textual numerical statements preserved):
  - For two-year ahead forecasts of real GDP, the CBO has a slightly pessimistic bias, compared to a slightly optimistic bias for the administration, with the CBO’s forecasts proving only marginally more accurate.
  - Degree of optimism in the Administration’s forecasts relatively small compared to other advanced economies, largely limited to the early 1980s.
  - Over a longer-term forecasting horizon, the administration’s bias is slightly more pronounced, but comparable to the bias in CBO or Consensus forecast.
- Table 3 text preserved exactly as in source (including formatting):
  - Real GDP Forecast Error
    2-year    5-year    2-year    5-year
    CBO-0.10.11.10.9
    OMB0.10.31.21
    Blue Chip Consensus-0.101.10.9
    AverageAbsolute Error
- Canada and Sweden:
  - Quality of government forecasts improved after establishment of fiscal councils.
  - Canada: beginning in 2008, the Canadian PBO began producing its own economic and fiscal forecasts that immediately disciplined the government’s forecasting exercise, with forecasts becoming more accurate and less pessimistic.
  - Sweden: move from overly pessimistic fiscal balance forecasts (average bias of 1.6 percent of GDP pre-council) to a small optimistic bias of 0.2 percent followed the introduction of the Swedish Fiscal policy Council.
- Belgium and Netherlands: independent macroeconomic forecasts generally more accurate than elsewhere in the European Union over the ten years prior to the crisis; small pessimistic error in short-term real GDP forecasts and slightly optimistic error at longer horizons; average errors relatively low compared to other European countries.

### Costing policies
- Independent costing of policy proposals contributes to public debate, transparency, and curbs tendency to underplay full policy costs.
  - Canada: PBO costing generated public debate about affordability and approach to different policies.
  - United States: CBO focuses on costing or scoring legislative proposals relative to the baseline; costing function argued by several commentators to be where CBO has been most influential and effective.
  - Netherlands and Australia: fiscal councils cost electoral platforms, influencing election debate and discouraging unaffordable commitments.
- PAYGO rule in the US context helped discourage Congress from making unaffordable proposals when enforced.

### Policy considerations
A. Pre-requisites and enabling factors
- Solid Public Financial Management (PFM) systems and good statistical governance are key to effectiveness of fiscal councils.
  - Reliable data and adequate institutional coverage critical to translate policymakers’ objectives into implementable plans and proper execution.
  - Major PFM dysfunctions can disrupt transmission between council tasks and fiscal performance.
  - Even with poor PFM and data systems, a fiscal council can foster reforms by monitoring budget execution, preparing high-quality reports, and improving forecasts.
  - Creation of a fiscal council should be part of a well-sequenced PFM strategy; in some cases stronger budget execution systems may have higher priority.

B. Remit and tasks
- Effectiveness is not tied to narrow institutional models or specific economic environments.
  - Fiscal councils can be useful across diverse governance systems, though transmission channels like democratic accountability depend on institutional factors (mode of election, legislative role in budget process).
  - Fiscal councils promoting transparency, macroeconomic stability culture, and providing neutral budget inputs are broadly useful across political systems.
  - Severe resource and capacity limits can be addressed by establishing lean bodies that outsource technical work to other independent institutions or professionals.

*Source: THE FUNCTIONS AND IMPACT OF FISCAL COUNCILS, INTERNATIONAL MONETARY FUND (excerpt).*

### 68.      The remit should be broad, clearly defined, and implementable. Specifically,

### 68.      The remit should be broad, clearly defined, and implementable. Specifically,

### Remit and core functions
- A fiscal council’s remit should be broad to address multiple and possibly changing sources and manifestations of the deficit bias, clearly defined, and implementable.
- At a minimum, a fiscal council should have a monitoring role, involving:
  - Ex-ante assessment of the consistency between fiscal plans and the stated objectives of the government (including commitments to adhere to certain numerical targets or limits).
  - Analysis of long-term sustainability (including medium to long-term risks).
  - Ex-post evaluation of fiscal performance against official aggregate objectives and targets.
- The council should have the freedom to determine its work agenda within that remit to avoid undue constraints on its monitoring role.
- In addition, the fiscal council should be mandated to perform tasks aimed at addressing specific sources of deficit bias; Table 4 maps potential causes of deficit bias into specific tasks.

### Mapping causes of deficit bias into tasks (summary of Table 4)
- Policymakers — Myopia, re-election concerns, partisanship, overoptimistic revenue forecasts, unrealistic spending estimates, creative accounting:
  - Produce unbiased macro-fiscal forecasts or at least assess official forecasts.
  - Analyze short and long-term implications of current policies; cost fiscal measures.
  - Monitor compliance with fiscal rules; report on government statistics integrity.
- Time inconsistency (policies agreed ex ante not adhered to ex post):
  - Examine fiscal outcomes in light of government commitments; monitor compliance with fiscal rules.
- Common pool problem between line ministries and/or government levels:
  - Analysis should cover the general government; issue public recommendations (strengthening centralization of the budget; coordinating fiscal policy among government entities to avoid soft budget constraints).
- Imperfect information: underestimation of risks and costs, overoptimistic growth views, misperception of budget constraint, lack of timely data:
  - Analyze fiscal sustainability, intergenerational equity, and fiscal risk; assess long term trends; possibly recommend appropriate fiscal policy.
- Asymmetric information (lack of transparency); insufficient analysis provided to the legislature:
  - Report regularly to Parliament and provide responses to questions; contribute to legislative debate on fiscal matters.
- Voters — Imperfect information and neglect for future generations:
  - Provide unbiased assessments of medium and long-term sustainability; raise public awareness on fiscal issues.
  - Impact analysis of unsustainable policy paths and costs of adjusting to the intertemporal budget constraint.

### Normative vs. positive roles
- By virtue of non-partisanship, a fiscal council is expected to confine work to positive analysis and technical work, although normative statements and recommendations could be envisaged in specific contexts.
- Risks of normative recommendations:
  - Could provoke open conflicts with the government and undermine perceived neutrality and non-partisanship.
  - Potentially reduce legitimacy and influence on public debate and invite government pressure (councils depend on budget appropriations and do not perform policy tasks).
- In some political contexts, non-partisan recommendations can help forge consensus and reduce negotiation costs.
- A broad mandate to make recommendations on any aspect of fiscal policy should be considered with caution given risks to independence.

### Interaction with rules-based frameworks
- Countries with rules-based frameworks should specify remit and tasks of fiscal councils to maximize compliance with rules.
- A fiscal council in a rules-based framework can foster compliance by:
  - Producing unbiased forecasts.
  - Verifying conditions for activating escape clauses or correction mechanisms.
  - Estimating targets expressed in structural terms.
- Synergies reflected in recent EU-wide requirements for “independent bodies” at the national level (Box 2).24

### EU-specific points (Box 2 highlights)
- Independent bodies should monitor compliance with fiscal rules; Council Directive on budgetary frameworks of November 2011 requires “independent bodies or bodies endowed with functional autonomy vis-à-vis the fiscal authorities of the Member States” to carry out “the effective and timely monitoring of compliance with the rules” (Chapter IV, Article 6b). This Directive entered into force in November 2011 as part of “the six-pack” and applies to all EU27 member states.
- The two-pack and related regulations:
  - Advisory role in activation of correction mechanism and escape clauses; advise on activation and operation of the correction mechanism and assess circumstances allowing temporary deviations from targets (Chapter II, Article 4).25
  - Ensure budget plans are based on unbiased macroeconomic projections; the two-pack requires "independent macroeconomic forecasts" be “produced or endorsed” by “independent bodies” in the context of budget preparation (Chapter I, Article 2.1.2).
  - Flexibility in institutional format; more than one independent body is permitted so long as responsibilities are clearly allocated and no overlap occurs (Article 7 of the preamble).

### Limits on fiscal council powers
- A fiscal council should not be given veto rights on the budget or receive specific policy prerogatives.
  - Delegation of fiscal powers is neither desirable nor credible; fiscal policy aspects are distributive and governments would perceive little ex-ante benefit in ceding spending decisions. (Reference to Debrun, 2011.)

### Decentralized and resource-rich settings
- Federal or highly decentralized settings:
  - Fiscal councils should cover the general government, monitor sub-national entities, and contribute to coordination of fiscal policy within the general government.
  - Neutral analyses of intergovernmental transfers and recommendations on distributive issues (including sharing of fiscal effort to reach general government targets) can facilitate cooperation and improve compliance with rules.
- Resource-rich countries:
  - Fiscal councils can help chart financially sustainable and inter-generationally equitable expenditure paths.
  - By limiting political manipulation of commodity price cycles and overoptimistic reserve assessments, councils can alleviate immediate spending pressures.
  - One option: devise a “second-generation” fiscal rule explicitly incorporating these parameters and task the fiscal council to produce them.

### Communication
- Councils should establish an effective communication strategy early:
  - Format of publications: concise and readable reports, simple “chartbooks” laying out key issues, well-designed website.
  - Diverse communication channels: press events around key reports, focused communiqués, and an informal network in the press and among policymakers.

---

### Independence (Section C)
- Strict guarantees against political interference are essential, especially for new institutions.26
- Typical guarantees (Box 3) include legal safeguards and procedural protections.

### Funding and resources
- Independence implies predictable funding commensurate to the council’s mandate:
  - Size (staff) could be set in legislation subject to periodic independent reviews.
  - Funding should not be subject to discretionary executive decisions; options include:
    - Separate line item in the budget.
    - Secured multi-year financing.
    - Taking financing entirely off budget (e.g., central bank mandated funding).

### Channels of influence and institutional provisions
- Independence alone does not guarantee influence; provisions to strengthen channels of influence:
  a. Council should speak with one voice regardless of governance structure; where committee decisions prevail, chairperson should at minimum cast the tie-breaking vote.
  b. Freedom to communicate to the public should be clarified, including guarantees on unrestricted media access; obligation to publicize calendar of publications and press conferences in advance to avoid misperceptions.
  c. Direct inputs into the budget process should be precisely defined:
    - Requests for costing measures or ad-hoc analyses should be limited to preserve independent work program.
    - The council could have discretion to decline certain requests, guaranteed by law.27
    - Ideally, introduce an explicit “comply-or-explain” clause in assessment of forecasts.

### Legal safeguards on independence (Box 3 highlights)
- Prohibition on elected officials giving instructions to the council.
- Merit-based selection of senior management with explicit qualifications.
- Appointment procedures to minimize politically motivated appointments (legislative confirmation, independent panels, short lists).
- Long and non-renewable terms of office for senior management to reduce political-cycle risks.28
- Own employment policy: full-time positions, competitive salary determination delinked from civil service rules, management responsibility for recruitment and personnel.
- Clear dismissal procedures specifying limited grounds for removal.
- Access to information: legal guarantee of full access to relevant government information, with safeguards for confidential data.

### Institutional models (Section D)
- When setting up a new fiscal council, a stand-alone institution should be preferred:
  - Offers best guarantees of legal and functional independence.
  - More likely to require a strong legal basis and dedicated staff, autonomous personnel policy, and possibly recruitment/remuneration outside civil service constraints.
  - Greater visibility aids quicker reputation establishment.
- If attached to legislative or executive branches, explicit and strict guarantees of functional independence and secured resources are even more critical; success of attached models often owed to gradual reputation buildup that new institutions cannot replicate immediately.

*Source: IMF staff assessment.*

### 79.      Attaching the fiscal council to another independent institution should in general be

### _071613 - 79.      Attaching the fiscal council to another independent institution should in general be avoided due to the risk of confusion between the respective mandates and tasks of the host and the guest.

### Hosting and interaction with other institutions
- Recommendation: Attaching the fiscal council to another independent institution should in general be avoided due to the risk of confusion between the respective mandates and tasks of the host and the guest.
- Audit office hosting: If the council is hosted in an audit office, the ex-ante and ex-post assessment tasks of each body must be clearly defined.
  - Constraint: The audit office should not produce ex-ante analyses of fiscal plans, programs and forecasts that would normally fall under the responsibility of the council.
- Central bank hosting: Placing the fiscal council in the central bank should be avoided.
  - Rationale: The council’s views and approaches might be tainted by the policy mandate of the bank (or the suspicion thereof would undermine the perceived neutrality and legitimacy of the council).
- Communication with other institutions:
  - Fiscal councils should establish formal communication channels with other institutions commenting on fiscal policy.
  - Trade-offs: Multiple signals about fiscal performance can improve professional standards but can also create cacophony when objectives conflict or information asymmetries exist.
  - Mitigation: Regular exchanges of views and information with official institutions (domestic, supranational or international) and open channels with influential private actors are recommended.
- EMU context: Regular exchange of views, methodologies and assessments with the European Commission is important.
  - National councils should be free to engage directly with supranational and international organizations.
  - Regular interactions among national fiscal councils are advisable to level the playing field and reduce informational asymmetries.

### Accountability, transparency, and best practice
- Fiscal transparency:
  - Fiscal councils should promote adoption of best practice in matters of fiscal transparency.
  - Role: Raise public understanding of government’s underlying financial position and risks via forecasts, long-term scenarios, and sustainability assessments.
  - Best practice: The methodologies and models used by councils should be fully disclosed.
- Accountability obligations:
  - The fiscal council, as an independent public institution, should be accountable to its political principal (Parliament, Executive or both) and to the broader public.
  - Typical mechanisms: Right for the political principal to dismiss management on a limited number of objective grounds in accordance with due process; ex-post assessments of mandate fulfillment and efficient use of resources; publication of a comprehensive Annual Report submitted to the political principal; regular hearings before parliamentary committees.
- Independent assessment of quality and impact:
  - Regular external evaluations are recommended to maintain professional standards and suggest operational or design improvements.
  - Challenge: Evaluating effectiveness is difficult due to multiplicity of tasks and largely qualitative evaluation indicators.
- Oversight frequency and format:
  - High-frequency evaluations (annual) should be avoided as they could distract from fiscal policy debate.
  - Medium-frequency (3-5 years): An Advisory Committee could review overall quality (reporting, methodologies) and report to the council and its political principal; peer reviews are an option.
  - Low-frequency (5-10 years): An ad-hoc committee could provide thorough review to detect design flaws and recommend reforms.
  - Composition: Oversight committees should ideally be high-level experts, preferably foreigners appointed by the council to ensure independence from local politics and broaden candidate pool.
  - Reporting: A summary of medium-frequency reviews could be appended to the Annual Report, while being mindful of the risk of creating noise around the council’s work.

### Empirical analysis: Can fiscal councils improve fiscal performance?
- Channels of influence:
  - Indirect political channel: Informing the public on the real state of public finances raises political cost of fiscal indiscipline and encourages sound policy.
  - Direct technical channel: Provision or assessment of macroeconomic forecasts; monitoring numerical fiscal rules; assessing conditions to activate escape clauses.
- Empirical evidence context:
  - Literature: Country case studies (Belgium, Chile, United Kingdom, Hungary) suggest councils contributed to improved performance in some cases (references cited in source).
  - Cross-country evidence: Debrun and Kumar (2008) for EU-15; fiscal rules associated with higher fiscal performance and fiscal councils can impact outcomes through rules.
- Staff’s novel cross-country panel empirical analysis:
  - Sample: 58 advanced and emerging countries over the period 1990-2011.
  - About half of the countries in the sample established a council during the period of analysis.
  - Estimation method: Bias-corrected Least Square Dummy Variable (LSDVC) dynamic panel estimator suggested by Bruno (2005).
  - Model specification: Augmented regression-based solvency test (Bohn, 1998) explaining the primary balance by:
    - Its lagged term (to allow for persistence),
    - Lagged gross debt (to capture long-term solvency constraint),
    - Output gap (to control for cyclicality),
    - A fiscal rule index (FRI) capturing comprehensiveness of numerical fiscal rules,
    - A dummy variable indicating existence of a fiscal council.
- Key empirical findings and conditional correlations:
  - The mere existence of fiscal councils is not associated with better fiscal outcomes after controlling for fiscal rules and other determinants of the primary balance.
  - Key characteristics of fiscal councils are associated with improved fiscal performance:
    - Independent fiscal councils (legal guarantees through legislation or operational guarantees via adequate human resources) have, on average, better fiscal outcomes.
    - Councils operating within a clear fiscal framework with a numerical fiscal rule that they monitor are associated with higher fiscal performance.
    - Technical contributions such as scoring of government measures and assessment of official forecasts are associated with better fiscal outcomes.
    - Councils with higher media impact tend to exhibit better fiscal outcomes.
  - Interpretation caveats:
    - Limited time span for many councils (more than half created after 2005) may affect results; reassessment with longer series is sensible.
    - Econometric limitations: possible reverse causation (fiscally-conscious governments may establish councils); small possibility of omitted variable bias despite lagged dependent variable; high correlation among council characteristics complicates assessment of combined impact.
    - Conclusion: Results are presented as robust conditional correlations; causal inference is avoided.

### Key statistics from the empirical model (table summary)
- Sample size and coverage:
  - Observations: 901
  - Countries: 58
  - Time period: 1990-2011
- Estimation and controls:
  - Time dummies: Yes
  - Estimator: Bias corrected LSDV dynamic panel model (Bruno, 2005)
- Representative coefficient estimates (dependent variable: Primary Balance in percent of GDP):
  - Primary Balance (t-1): 0.823; 0.824; 0.821; 0.821; 0.826; 0.826; 0.826; 0.824 (absolute bootstrapped t-statistics in parentheses; significance reported as * 10%, ** 5%, *** 1% in source table)
  - Debt (t-1): 0.015; 0.017; 0.016; 0.023; 0.016; 0.016; 0.016; 0.017 (t-statistics shown in source)
  - Output Gap (t-1): -0.095; -0.094; -0.096; -0.091; -0.098; -0.095; -0.092; -0.093 (t-statistics shown in source)
  - Fiscal Rules Index (FRI): 0.277; 0.275; 0.283; 0.249; 0.232; 0.289; 0.295; 0.280 (t-statistics shown in source)
  - Selected council characteristics appearing in regressions (coefficients and significance as in table):
    - Fiscal council legal independence: 0.543 (1.42) and 0.930 (2.38)** in alternative specifications (t-statistics in parentheses)
    - Staff number (High level): 0.296 (2.34)** in one specification
    - Fiscal rule monitoring: 1.524 (2.80)***
    - Costing of measures: 1.355 (2.57)**
    - Forecast assessment: 1.293 (2.78)***
    - High media Impact: 0.904 (2.32)**
  - Notes: Absolute bootstrapped t-statistics in parentheses. * Significant at 10%; ** significant at 5%; *** significant at 1%.

*Italic source attribution: Excerpt from "THE FUNCTIONS AND IMPACT OF FISCAL COUNCILS" (International Monetary Fund) contained in the provided content unit.*

### Appendix Table 2. Correlation Matrix

### Appendix Table 2. Correlation Matrix

### Correlation matrix (selected variables)
- Legal independence — Independent budget — Fiscal rule monitoring — Forecast assessment — High media impact
- Legal independence: 1
- Independent budget: 0.75* with Legal independence; 1 with itself
- Fiscal rule monitoring: 0.43* with Legal independence; 0.39* with Independent budget; 1 with itself
- Forecast assessment: 0.80* with Legal independence; 0.65* with Independent budget; 0.32* with Fiscal rule monitoring; 1 with itself
- High media impact: 0.89* with Legal independence; 0.77* with Independent budget; 0.61* with Fiscal rule monitoring; 0.81* with Forecast assessment; 1 with itself
- * Significant at 1%

### Context and interpretation (text from Appendix 2)
- Forecast error defined as difference between forecast of aggregate for t made in t-1 and outcome (estimate for t made in t+1).
- Mean forecast error captures forecasting bias; mean of absolute value of forecast errors assesses forecast accuracy.
- Sample: 26 countries over the period 1998-2010.
- Simple pooled regressions control for the output gap, fiscal rules, and time dummies.
- Key qualitative findings:
  - Fiscal councils and their key characteristics are associated with lower forecast errors.
  - Countries with fiscal councils tend to have lower bias in official budget forecasts and better forecast accuracy.
  - Independence, high media impact, provision/assessment of macroeconomic forecasts, and monitoring of fiscal rules are associated with lower bias in official forecasts of the budget balance and better accuracy.
  - Real growth forecasts tend to be over-optimistic during booms.
  - Only independent fiscal councils are associated with lower bias of real output forecasts.
  - Independence, provision/assessment of macroeconomic forecasts, and high media impact are associated with better accuracy of real output forecasts.
  - Real GDP forecasts tend to be less accurate during booms.

### Appendix Table 3 — Fiscal Councils Characteristics and Primary Balance Forecast Error
- Dependent Variable: Forecast Error (Primary Balance)
- Coefficients (robust t-statistics in parentheses):
  - Output gap: 0.059 (0.63); 0.060 (0.65); 0.067 (0.72); 0.059 (0.63); 0.064 (0.69); 0.059 (0.63)
  - Fiscal rules index: -0.215 (1.70)*; -0.252 (1.95)*; -0.213 (1.58); -0.215 (1.70)*; -0.261 (1.98)**; -0.193 (1.43)
  - Fiscal council: -0.783 (3.32)***
  - Legal independence: -0.911 (3.76)***
  - Independent budget: -0.821 (3.14)***
  - High media impact: -0.783 (3.32)***
  - Forecasts provision/assess: -0.863 (3.35)***
  - Fiscal rules monitoring: -0.653 (2.28)**
  - Constant: -0.107 (0.16); -0.001 (0.00); -0.378 (0.68); -0.107 (0.16); -0.004 (0.01); -0.406 (0.76)
- Time dummies: Yes
- R2: 0.32; 0.33; 0.32; 0.32; 0.32; 0.31
- Observations: 225
- N. of countries: 26

### Appendix Table 4 — Fiscal Councils Characteristics and Primary Balance Absolute Forecast Error
- Dependent Variable: Forecast Error (Primary Balance)
- Coefficients (robust t-statistics in parentheses):
  - Output gap: 0.000 (0.00); 0.002 (0.03); 0.007 (0.08); 0.000 (0.00); 0.006 (0.07); 0.002 (0.02)
  - Fiscal rules index: -0.082 (0.74); -0.122 (1.07); -0.098 (0.83); -0.082 (0.74); -0.131 (1.13); -0.074 (0.63)
  - Fiscal council: -0.813 (4.11)***
  - Legal independence: -0.857 (4.13)***
  - Independent budget: -0.576 (2.70)***
  - High media impact: -0.813 (4.11)***
  - Forecasts provision/assess: -0.770 (3.41)***
  - Fiscal rules monitoring: -0.549 (2.31)**
  - Constant: 1.105 (2.88)***; 1.187 (3.01)***; 0.857 (2.64)***; 1.105 (2.88)***; 1.171 (3.04)***; 0.819 (2.45)**
- Time dummies: Yes
- R2: 0.21; 0.22; 0.19; 0.21; 0.20; 0.19
- Observations: 225
- N. of countries: 26

### Appendix Table 5 — Fiscal Councils Characteristics and Real Growth Forecast Error
- Dependent Variable: Forecast Error (Primary Balance) [table header label preserved as in source]
- Coefficients (robust t-statistics in parentheses):
  - Output gap: 0.377 (4.48)***; 0.377 (4.49)***; 0.380 (4.51)***; 0.377 (4.48)***; 0.378 (4.49)***; 0.377 (4.46)***
  - Fiscal rules index: 0.140 (1.56); 0.126 (1.42); 0.151 (1.66)*; 0.140 (1.56); 0.123 (1.37); 0.155 (1.57)
  - Fiscal council: -0.285 (1.28)
  - Legal independence: -0.297 (1.27)
  - Independent budget: -0.456 (1.73)*
  - High media impact: -0.285 (1.28)
  - Forecasts Provision/assess: -0.192 (0.75)
  - Fiscal rules monitoring: -0.300 (1.07)
  - Constant: -1.707 (1.45); -1.679 (1.41); -1.824 (1.65); -1.707 (1.45); -1.708 (1.47); -1.827 (1.66)*
- Time dummies: Yes
- R2: 0.60 across specifications
- Observations: 225
- N. of countries: 26

### Appendix Table 6 — Fiscal Councils Characteristics and Absolute Real Growth Forecast Error
- Dependent Variable: Forecast Error (Primary Balance) [table header label preserved as in source]
- Coefficients (robust t-statistics in parentheses):
  - Output gap: 0.266 (3.01)***; 0.267 (3.00)***; 0.271 (3.03)***; 0.266 (3.01)***; 0.270 (3.04)***; 0.267 (2.97)***
  - Fiscal rules index: -0.004 (0.05); -0.031 (0.36); -0.002 (0.02); -0.004 (0.05); -0.034 (0.40); 0.003 (0.03)
  - Fiscal council: -0.512 (2.48)**
  - Legal independence: -0.441 (2.02)**
  - Independent budget: -0.555 (2.52)**
  - High media impact: -0.512 (2.48)**
  - Forecasts Provision/assess: -0.635 (2.88)***
  - Fiscal rules monitoring: -0.364 (1.35)
  - Constant: 1.649 (4.38)***; 1.671 (4.48)***; 1.470 (3.21)***; 1.649 (4.38)***; 1.739 (5.04)***; 1.466 (3.14)***
- Time dummies: Yes
- R2: 0.48 across specifications
- Observations: 225
- N. of countries: 26

*Robust t-statistics in parentheses.  
* Significant at 10%; ** significant at 5%; *** significant at 1%.

*Source: Appendix Table 2 and accompanying Appendix 2 text from the provided IMF content unit.*

### References

### References

### Academic articles and working papers
- Acemoglu, Daron, James Robinson and Ragnar Torvik, 2013, “Why Do Voters Dismantel Checks and Balances?”, unpublished, MIT.
- Bogaert, Henri, L. Dobbelaere, B. Hertveldt, and I. Lebrun, 2006, “Fiscal Councils, Independent Forecasts and the Budget Process: Lessons from the Belgian Case,” Federal Planning Bureau Working Paper No 4-06, (Brussels: Federal Planning Bureau).
- Bohn, Henning, (1998), “The Behavior of U.S. Public debt and Deficits,” Quarterly Journal of Economics, 113, pp. 949-63.
- Calmfors, Lars, 2003, “Fiscal policy to stabilize the domestic economy in the EMU,” CESifo Economic Studies, 49, pp. 319–353.
- Calmfors, Lars, 2005, “What Remains of the Stability and Growth Pact and What Next?” SIEPS Report No 8, (Stockholm: Swedish Institute for European Policy Studies).
- Calmfors, Lars and Simon Wren Lewis, 2011, “What Should Fiscal Councils Do?” Economic Policy, 26, pp. 649-695.
- Castellani, Francesca and Xavier Debrun, 2005, “Designing Macroeconomic Frameworks: A Positive Analysis of Monetary and Fiscal Delegation,” International Finance, 8, pp. 87-117.
- Debrun, Xavier, 2011, “Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies,” IMF Working Paper No 11/173, (Washington, DC: International Monetary Fund).
- Debrun, Xavier, David Hauner and Manmohan S Kumar, 2009, “Independent Fiscal Agencies,” Journal of Economic Surveys, 23:1, pp. 44-81.
- Debrun, Xavier, Laurent Moulin, Alessandro Turrini, Joaquim Ayuso-i-Casals, and Manmohan S. Kumar, 2008, “Tied to the Mast? The Role of National Fiscal Rules in the European Union,” Economic Policy, 54, pp. 297–362.
- Debrun, Xavier, Marc Gérard and Jason Harris, 2011, “Fiscal Policies in Crisis Mode: Has the Time for Fiscal Councils Come at Last?” unpublished, International Monetary Fund.
- Eichengreen, Barry, Ricardo Hausmann, and Juergen von Hagen, 1999, “Reforming budgetary institutions in Latin America: the case for a national fiscal council,” Open Economies Review, 10, pp. 415–442.
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- Fatás, Antonio, Juergen von Hagen, Andrew Hughes Hallett, Rolf Strauch, and Anne Sibert, 2003, “Stability and growth in Europe: towards a better pact,” Monitoring European Integration 13, (London: Center for Economic Policy Research).
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- Hemming, Richard and Philip Joyce, 2013, “The Role of Fiscal councils in Promoting Fiscal Responsibility”, in Marco Cangiano, Teresa Curristine and Michel Lazare (eds.), Public Financial Management and Its Emerging Architecture, 2013 (Washington, DC: International Monetary Fund).
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### IMF and international organization publications
- International Monetary Fund, 2005, “Promoting Fiscal Discipline: Is There a Role for Fiscal Agencies?” IMF Policy Paper, (Washington, DC: International Monetary Fund).
- International Monetary Fund, 2009, “Fiscal Rules—Anchoring Expectations for Sustainable Public Finances” IMF Policy Paper, (Washington, DC: International Monetary Fund).
- International Monetary Fund, 2010, “Ireland: Request for an Extended Arrangement—Staff Report; Staff Supplement; Staff Statement; and Press Release on the Executive Board Discussion,” IMF Country Report No. 10/366.
- International Monetary Fund, 2011a, “Portugal: Request for a Three-Year Arrangement Under the Extended Fund Facility,” IMF Country Report No. 11/127.
- International Monetary Fund, 2011b, “United Kingdom: 2011 Article IV Consultation—Staff Report; Staff Supplement; Staff Statement; Public Information Notice on the Executive Board Discussion; and Statement by the Executive Director for the United Kingdom,” IMF Country Report No. 11/220.
- International Monetary Fund, 2011c, “Republic of Serbia: Request for Stand-By Arrangement,” IMF Country Report No. 11/311.
- International Monetary Fund, 2012, “Taking Stock. A Progress Report on Fiscal Adjustment,” Fiscal Monitor, Fall.
- Organization for Economic Cooperation and Development, 2013, “OECD Principles for Independent Fiscal Institutions,” Public Governance and Territorial Development Directorate, May.
- Joyce, Philip, 2011, The Congressional Budget Office: Honest Number, Power, and Policymaking, Georgetown University Press, Washington DC.

*Source: _071613 - References (PDF chapter/section).*

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