## _wp1458 - References .............................................................................................................

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---

### I. Introduction — fiscal legacy and commitment problem
- The 2008-9 economic and financial crisis produced three ingredients threatening public budgets:
  - a legacy of historically high public debts prior to the crisis,
  - stimulus policies that "have not yet paid for themselves by triggering a sustained recovery,"
  - and "large cumulative revenue losses with respect to previously expected fiscal paths, compounding the already unsustainable growth in entitlement spending."
- Uncertainty about future economic and financial trends increases the premium on policymakers’ capacity to provide clear directions for future fiscal policies.
- Pre-crisis procyclicality, delayed reforms, and the magnitude of current fiscal challenges have eroded public confidence and amplified the commitment problem in fiscal policy.
- Political-economy diagnosis emphasizes coordination difficulties over limited public resources and policymakers’ myopia as causes of excessive debts and deficits (references include Feld and Kirchgassner (2001); Debrun, Hauner and Kumar (2009)).

### II. Institutional responses: rules, authorities, and fiscal councils
- Fiscal policy rules:
  - Set explicit quantitative limits on fiscal aggregates; effectiveness depends on penalties or reputational/electoral costs for non-compliance.
  - Examples: EU Stability and Growth Pact, "debt brakes" (Switzerland and Germany).
- Vulnerabilities of rules: lack of political commitment, inadequate design, weak enforcement; historical failures (e.g., collapse of the first variant of the Stability and Growth Pact in November 2003).
- Independent fiscal authorities:
  - Proposals to delegate deficit/borrowing limits to independent experts (Wyplosz, 2005); face normative and positive objections (Alesina and Tabellini, 2007).
- Fiscal councils:
  - Independent institutions working mainly through influence and persuasion (analysis, assessments, forecasts, recommendations).
  - Examples cited: Congressional Budget Office (United States), Central Planning Bureau (Netherlands), High Council of Finance (Belgium); more recently in Australia, Canada, France, Italy, South Africa, United Kingdom.
  - Positioned as complements to fiscal rules rather than substitutes for independent fiscal authorities.

### III. Purpose and contribution of the paper
- Document the recent surge of fiscal councils among IMF members and present preliminary evidence on effectiveness.
- Two main contributions:
  - A new dataset compiling key characteristics and institutional features of existing fiscal councils.
  - An empirical exploration of potential determinants of effective fiscal councils.
- Key characteristics associated with stronger fiscal performance and more accurate, less biased forecasts:
  - operational independence,
  - provision/assessment of forecasts,
  - media presence,
  - and fiscal rules monitoring.

### IV. Theory: fiscal rules, partisan deficit bias, and the role of fiscal councils
- Simple theoretical illustration of lack of credibility of fiscal rules and partisan deficit bias:
  - Voters maximize two-period utility U where q denotes per-capita consumption of public goods; expectations operator 0E; subjective discount factor β.
  - Politicians belong to two parties (C or L); preferences identical to voters but they value public goods only in office; electoral uncertainty captured by parameter ρ (probability of incumbent being in office).
  - Government intertemporal budget constraints (per-capita public goods) expressed in the paper as:
    - Period 1: 11 δ τbyq
    - Period 2: 22 δ τRbyq
  - Shocks δt ~ N(0, σδ^2), non-serially correlated.
  - Social planner (with R = β = 1 and quadratic utility) yields balanced budget: q1* = q2*, b* = 0.
  - Political equilibrium yields partisan deficit bias: b** = [ (1−ρ) / (1+ρ) ] b~, where yq̃−τ = b̃.
  - Boundary cases:
    - ρ = 1 implies balanced budget b** = b* = 0;
    - ρ = 0 implies b** = b̃.
  - Balanced-budget rule can implement social optimum only if violations are costly (marginal cost f); effectiveness requires f = b̃ (1−ρ)/ρ.
- Introducing a fiscal council:
  - Fiscal councils can alleviate informational asymmetries by providing objective assessments of fiscal performance, enabling voters to distinguish competence from luck.
  - If councils make compliance/performance observable and credible, electoral uncertainty can be reduced, making adherence to socially optimal rules incentive-compatible for politicians.
  - Essential features for a trusted fiscal council:
    - guarantees of independence from partisan influence;
    - active public presence;
    - technical contributions (provision/assessment of forecasts, monitoring fiscal rules, costing measures);
    - clear definition of policy objectives under scrutiny (e.g., fiscal sustainability).

### V. Fiscal Council Dataset — coverage and definition
- Definition used to identify fiscal councils (Debrun et al, 2013):
  - A permanent agency with a statutory or executive mandate to assess publicly and independently from partisan influence government fiscal policies, plans, and performance against macroeconomic objectives related to long-term sustainability, short-medium-term macroeconomic stability, and other official objectives.
  - Additional possible roles: (i) contribute to unbiased macroeconomic and budgetary forecasts in budget preparation, (ii) facilitate implementation of fiscal policy rules, (iii) cost new policy initiatives, and (iv) identify fiscal policy options and possibly formulate recommendations.
- Dataset coverage:
  - Includes existing fiscal councils and councils for which primary legislative texts had been adopted as of end-January 2013.
  - Sources: fiscal responsibility laws, fiscal councils’ websites, IMF country papers, country authorities, IMF desk economists, European Commission database on independent fiscal institutions, OECD background notes.
  - Most variables in the dataset are binary.

### VI. Empirical approach and structure of the paper
- Paper structure:
  - Section II: revisits credibility problem of fiscal rules and how fiscal councils can help.
  - Section III: presents the Fiscal Council Dataset and describes councils as of January 2013.
  - Section IV: analyzes the role of fiscal councils in fostering fiscal discipline using the dataset.
  - Section V: concludes.
- Box 1: Fiscal Council Dataset: Variables Description summarizes Independence and governance; Size of the council; Remit of fiscal councils; Main trends and features; Tasks and channels of influence; Descriptive findings; Empirical analysis details.

### VII. Fiscal councils listed in the Dataset (selected entries and start of activity)
- Australia — Parliamentary Budget Office — 2012
- Austria — Government Debt Committee — 2002
- Belgium — High Council of Finance - Section "Public Sector Borrowing Requirement" — 1989
- Belgium — Federal Planning Bureau — 1994
- Canada — Parliamentary Budget Office — 2008
- Croatia — Fiscal Policy Council — 2013
- Denmark — Danish Economic Council — 1962
- Finland — National Audit Office of Finland — 2013
- France — High Council of Public Finance — 2013
- Georgia — Parliamentary Budget Office — 1997
- Germany — German Council of Economic Experts — 1963
- Hungary — Fiscal Council — 2009
- Ireland — Irish Fiscal Advisory Council — 2011
- Italy — Parliamentary Budget Office — 2014
- Japan — Fiscal System Council — 1950
- Kenya — Parliamentary Budget Office — 2009
- Mexico — Center for Public Finance Studies — 1999
- Netherlands — Netherlands Bureau for Economic Policy Analysis — 1945
- Portugal — Portuguese Public Finance Council — 2012
- Romania — Fiscal Council — 2010
- Serbia — Fiscal Council — 2011
- Slovak Republic — Council for Budget Responsibility — 2011
- Slovenia — Institute of Macroeconomic Analysis and Development — 1991
- Slovenia — Fiscal Council — 2009
- South Africa — Parliamentary Budget Office — 2014
- South Korea — National Assembly Budget Office — 2003
- Sweden — Swedish Fiscal Policy Council — 2007
- United Kingdom — Office for Budget Responsibility — 2010
- United States — Congressional Budget Office — 1974
- Notes in dataset:
  - "The South African and Italian PBOs are being established and expected to be fully operational by the end of 2014."
  - "The fiscal council in Slovenia has been formally established but it is not yet fully operational."
  - "Chile has established a Fiscal Advisory Council in April 2013."

### VIII. Box 1 — Fiscal Council Dataset: Variables Description (selected variable definitions)
- Independence and governance:
  - Legal independence: Yes: 1, No: 0.
  - Safeguards on budget: conditions listed for counting as safeguards.
  - Composition, appointment, and term of high-level staff: binary indicators for presence of non citizens, academics, policy experts, civil servants; appointment by government/parliament/other; length of terms (in years).
  - Staff commensurate to tasks: Yes: 1, No: 0.
- Size of the council:
  - Number of technical and administrative staff.
  - Number of management and high level staff.
- Remit of fiscal councils:
  - Forecasts provision/assessment: Yes: 1, No: 0.
  - Monitoring of Fiscal rules: Yes: 1, No: 0.
  - Costing of measures: Yes: 1, No: 0.
  - Long-term sustainability analysis: Yes: 1, No: 0.
  - Positive analysis: Yes: 1, No: 0.
  - Normative analysis or recommendations: Yes: 1, No: 0.
- Tasks and channels of influence:
  - Public reports: Yes: 1, No: 0.
  - High media impact: Yes: 1, No: 0.
  - Binding forecasts: Yes: 1, No: 0.
  - Formal consultation or hearings: Yes: 1, No: 0.
  - Stall the budget process: Yes: 1, No: 0.
  - Comply or explain: Yes: 1, No: 0.

### IX. Descriptive findings from the Fiscal Council Dataset
- Institutional models:
  - Most fiscal institutions (90 percent) are attached to the legislature (parliamentary budget office), the executive, or set-up as stand-alone bodies.
  - Parliamentary budget offices: historical presence in presidential systems (United States and Korea) and diffusion to many advanced and developing countries (Australia, Canada, Italy, Georgia, Kenya, Mexico, South Africa).
  - Fiscal councils attached to the executive: examples include Belgium, Croatia, Denmark, Japan, Netherlands, Slovenia, United Kingdom.
  - Stand-alone fiscal councils: examples include Germany, Hungary, Ireland, Portugal, Romania, Serbia, Slovak Republic, Sweden.
  - Two countries (France and Finland) have fiscal councils attached to the supreme audit institution (note: in Finland the audit office actually performs the task of the council).
- Remits and tasks:
  - All existing councils perform positive analyses.
  - Vast majority evaluate long-term sustainability issues and provide or assess macroeconomic forecasts.
  - Less common but growing responsibilities: monitoring compliance with fiscal policy rules and costing of policy measures.
  - Explicit monitoring of numerical rules and costing of new initiatives present in councils established in Romania (2010), Ireland (2011), Serbia (2011), Slovak Republic (2011), and Italy (2014).
- Legal protections and resources:
  - Majority benefit from legal protections against partisanship when fulfilling their mandate.
  - Less than half of councils have their budget protected from arbitrary cuts.
  - Safeguards on budget range from separate budget line subject to vote in Parliament to multi-year appropriations.
- Influence channels:
  - Fiscal councils mostly influence policy indirectly through public debate and reputational impact.
  - All fiscal councils prepare public reports; many have significant media impact.
  - Direct involvement in budget process (binding forecasts or “comply or explain”) is rare.
  - A sizeable number have formal consultations with government or hearings in Parliament (examples: Finland, France, Georgia, Italy, Romania, Serbia).
- Size and composition:
  - Small councils (<10 full-time professionals) often limited to fiscal policy assessment (examples: Finland, Ireland, Slovenia).
  - Larger councils (20+) often prepare forecasts, conduct long-term sustainability analysis, and cost policy measures (examples: Netherlands, South Korea, United States).
  - Most staffs composed of academics, policy experts, civil servants; growing share of foreign experts in senior management.

### X. Empirical analysis: sample, methods, and scope
- Panel for fiscal performance analysis:
  - Cross-country panel covering 58 advanced and emerging countries over the period 1990-2011.
  - About half of the countries in the sample established a council during the period.
  - Estimation method: Bias-corrected Least Square Dummy Variable (LSDVC) dynamic panel estimator (Bruno, 2005), applied to a Bohn (1998) style reaction function.
  - Observations reported: 901; Countries: 58.
- Forecast-quality analysis:
  - Sample: 26 advanced and emerging European countries over the period 1998-2010.
  - Observations reported: 225; Countries: 26.
  - Forecast error definitions: forecast error = forecast for t made in t-1 minus outcome (estimate for t made in t+1); mean forecast error captures bias; mean absolute value captures accuracy.

### XI. Key empirical findings on fiscal performance (regression results summary)
- Fiscal Rules Index (FRI) coefficients reported across specifications:
  - 0.277; 0.275; 0.283; 0.249; 0.232; 0.289; 0.295; 0.280.
- Fiscal councils (existence vs. characteristics):
  - Mere existence of a fiscal council not sufficient to improve fiscal balances; specific characteristics matter.
  - Statistically significant council characteristics associated with better fiscal performance (example coefficients reported):
    - Legal independence: 0.930 (example specification).
    - Fiscal rule monitoring: 1.524 (example specification).
    - Forecast Assessment: 1.293 (example specification).
    - Costing of measures: 1.355 (example specification).
    - High media impact: 0.904 (example specification).
    - Staff number (high level): 0.296 (example specification).
- Debt and macro controls in the model:
  - Primary Balance (t-1) coefficient reported ~ 0.823 to 0.826 across specifications.
  - Debt (t-1) coefficient reported: 0.015; 0.017; 0.016; 0.023; 0.016; 0.016; 0.016; 0.017.
  - Output gap (t-1) coefficient reported around -0.095 to -0.091.
- Caveats emphasized:
  - More than half of existing fiscal councils created after 2005 — limited time span for some councils.
  - Econometric limitations: potential endogeneity and unobserved preferences; high correlation among council characteristics complicates joint impact assessment.
  - Interaction tests between fiscal rules and fiscal councils did not reveal statistically significant complementarities (likely due to limited variation; most countries with councils also have numerical rules).

### XII. Key empirical findings on forecast quality (bias and accuracy)
- Primary balance forecast errors (selected reported coefficients and significance):
  - Fiscal rules index: -0.215; -0.252; -0.213; -0.215; -0.261; -0.193 (some significant at 10%/5%).
  - Fiscal council (existence) coefficient: -0.783 (t-statistic (3.32)***).
  - Legal independence coefficient: -0.911 (t-statistic (3.76)***).
  - Safeguards on budget coefficient: -0.821 (t-statistic (3.14)***).
  - High media impact coefficient: -0.783 (t-statistic (3.32)***).
  - Forecasts provision/assessment coefficient: -0.863 (t-statistic (3.35)***).
  - Fiscal rules monitoring coefficient: -0.653 (t-statistic (2.28)**).
  - Interpretation: countries with fiscal councils (especially independent ones, with high media impact, that provide/assess forecasts and monitor rules) have less biased and more accurate budgetary forecasts.
- Real growth forecast errors (selected reported coefficients and significance):
  - Output gap coefficient reported: 0.377; 0.377; 0.380; 0.377; 0.378; 0.377 (statistically significant).
  - Fiscal rules index coefficients: 0.140; 0.126; 0.151 (some borderline significance).
  - Fiscal council existence coefficient reported: -0.285 (not statistically significant in Table 7).
  - Safeguards on budget associated with lower real growth forecast error: -0.456 (1.73)*.
  - Only independent fiscal councils seem associated with lower bias of real output forecasts per the text.
  - Text notes real GDP forecasts tend to be over-optimistic during booms; independent councils associated with lower bias and better accuracy for real output forecasts.

### XIII. Appendix I — Correlations among fiscal councils’ features (selected pairwise correlations)
- Correlation matrix (pairwise values; * significant at 1%):
  - Legal independence — Safeguards on budget: 0.75*
  - Legal independence — Fiscal rule monitoring: 0.43*
  - Legal independence — Forecast assessment: 0.80*
  - Legal independence — High media impact: 0.89*
  - Safeguards on budget — Fiscal rule monitoring: 0.39*
  - Safeguards on budget — Forecast assessment: 0.65*
  - Safeguards on 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*

### XIV. Appendix II — Forecast regressions (selected table summaries)
- Table A.2. Fiscal Councils Characteristics and Primary Balance Absolute Forecast Error:
  - Observations: 225; N. of countries: 26.
  - Key coefficients (examples across columns):
    - Fiscal council: -0.813  (4.11)***
    - Legal independence: -0.857  (4.13)***
    - Safeguards on 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 across columns: 0.21; 0.22; 0.19; 0.21; 0.20; 0.19.
- Table A.3. Fiscal Councils Characteristics and Absolute Real Growth Forecast Error:
  - Observations: 225; N. of countries: 26.
  - Key coefficients (examples across columns):
    - Output gap: 0.266  (3.01)***; 0.267  (3.00)***; 0.271  (3.03)***.
    - Fiscal council: -0.512  (2.48)**.
    - Legal independence: -0.441  (2.02)**.
    - Safeguards on budget: -0.555  (2.52)**.
    - Forecasts provision / assess: -0.635  (2.88)***.
  - R2 across columns: 0.48 (consistent across specifications).

### XV. Conclusions and policy implications (as stated in the source)
- The dataset documents a surge in the number of fiscal councils since the crisis and wide diversity in institutional forms, remits, and tasks.
- Empirical evidence (conditional correlations) suggests that only well-designed fiscal councils are associated with:
  - Stronger fiscal performance.
  - More accurate and less biased forecasts.
- Key features of effective fiscal councils highlighted:
  - Operational independence from politics (legal or operational guarantees, protected resources).
  - Provision or public assessment of budgetary forecasts.
  - Strong presence in the public debate (high media impact).
  - Explicit role in monitoring fiscal policy rules.
- Complementarity with fiscal rules:
  - Fiscal rules are associated with better fiscal discipline.
  - Fiscal councils could complement rules in promoting sound fiscal policies by addressing inflexibilities and helping with transparency and public debate.
- Policy guidance implied by the analysis:
  - Design fiscal councils to fit country-specific characteristics (human and financial resources, political traditions, causes of fiscal imbalance).
  - Emphasize independence, forecasting capacity, media outreach, and rule-monitoring roles to maximize councils’ effectiveness.

*Content drawn from the PDF chapter/section titled "_wp1458 - References ............................................................................................................." (canonical source URL provided with the content unit).*

### References .............................................................................................................

### _wp1458 - References .............................................................................................................

### I. Introduction — fiscal legacy and commitment problem
- The 2008-9 economic and financial crisis produced three ingredients threatening public budgets: a legacy of historically high public debts prior to the crisis, stimulus policies that "have not yet paid for themselves by triggering a sustained recovery," and "large cumulative revenue losses with respect to previously expected fiscal paths, compounding the already unsustainable growth in entitlement spending."
- Uncertainty about future economic and financial trends increases the premium on policymakers’ capacity to provide clear directions for future fiscal policies.
- Pre-crisis procyclicality, delayed reforms, and the magnitude of current fiscal challenges have eroded public confidence and amplified the commitment problem in fiscal policy.
- The political-economy diagnosis emphasizes coordination difficulties over limited public resources and policymakers’ myopia as causes of excessive debts and deficits (references include Feld and Kirchgassner (2001); Debrun, Hauner and Kumar (2009)).

### II. Institutional responses: rules, authorities, and fiscal councils
- Fiscal policy rules: set explicit quantitative limits on fiscal aggregates; effectiveness depends on penalties or reputational/electoral costs for non-compliance. Examples: EU Stability and Growth Pact, "debt brakes" (Switzerland and Germany).
- Vulnerabilities of rules: lack of political commitment, inadequate design, weak enforcement; historical failures (e.g., collapse of the first variant of the Stability and Growth Pact in November 2003).
- Independent fiscal authorities: proposals to delegate deficit/borrowing limits to independent experts (Wyplosz, 2005); face normative and positive objections (Alesina and Tabellini, 2007).
- Fiscal councils: independent institutions working mainly through influence and persuasion (analysis, assessments, forecasts, recommendations). Examples cited: Congressional Budget Office (United States), Central Planning Bureau (Netherlands), High Council of Finance (Belgium); more recently in Australia, Canada, France, Italy, South Africa, United Kingdom.
- Fiscal councils are positioned as complements to fiscal rules rather than substitutes for independent fiscal authorities.

### III. Purpose and contribution of the paper
- Document the recent surge of fiscal councils among IMF members and present preliminary evidence on effectiveness.
- Two main contributions:
  - A new dataset compiling key characteristics and institutional features of existing fiscal councils.
  - An empirical exploration of potential determinants of effective fiscal councils.
- Key characteristics associated with stronger fiscal performance and more accurate, less biased forecasts: operational independence, provision/assessment of forecasts, media presence, and fiscal rules monitoring.

### IV. Theory: fiscal rules, partisan deficit bias, and the role of fiscal councils
- Simple theoretical illustration of lack of credibility of fiscal rules and partisan deficit bias:
  - Voters maximize two-period utility U where q denotes per-capita consumption of public goods; expectations operator 0E; subjective discount factor β.
  - Politicians belong to two parties (C or L); preferences identical to voters but they value public goods only in office; electoral uncertainty captured by parameter ρ (probability of incumbent being in office).
  - Government intertemporal budget constraints (per-capita public goods):
    - Period 1: y = q1 + τ − δ1 (expressed in paper as 11 δ τbyq)
    - Period 2: y = q2 + τ − Rb − δ2 (expressed in paper as 22 δ τRbyq)
    - Shocks δt ~ N(0, σδ^2), non-serially correlated.
  - Social planner (with R = β = 1 and quadratic utility) yields balanced budget: q1* = q2*, b* = 0.
  - Political equilibrium yields partisan deficit bias: b** = [ (1−ρ) / (1+ρ) ] b~, where yq̃−τ = b̃ (notation as in source).
  - Boundary cases: ρ = 1 implies balanced budget b** = b* = 0; ρ = 0 implies b** = b̃.
  - Balanced-budget rule can implement social optimum only if violations are costly (marginal cost f); effectiveness requires f = b̃ (1−ρ)/ρ.
- Introducing a fiscal council:
  - Fiscal councils can alleviate informational asymmetries by providing objective assessments of fiscal performance, enabling voters to distinguish competence from luck.
  - If councils make compliance/performance observable and credible, electoral uncertainty can be reduced, making adherence to socially optimal rules incentive-compatible for politicians.
  - Essential features for a trusted fiscal council: guarantees of independence from partisan influence; active public presence; technical contributions (provision/assessment of forecasts, monitoring fiscal rules, costing measures); clear definition of policy objectives under scrutiny (e.g., fiscal sustainability).

### V. Fiscal Council Dataset — coverage and definition
- Definition used to identify fiscal councils (Debrun et al, 2013):
  - A permanent agency with a statutory or executive mandate to assess publicly and independently from partisan influence government fiscal policies, plans, and performance against macroeconomic objectives related to long-term sustainability, short-medium-term macroeconomic stability, and other official objectives.
  - Additional possible roles: (i) contribute to unbiased macroeconomic and budgetary forecasts in budget preparation, (ii) facilitate implementation of fiscal policy rules, (iii) cost new policy initiatives, and (iv) identify fiscal policy options and possibly formulate recommendations.
- Dataset coverage:
  - Includes existing fiscal councils and councils for which primary legislative texts had been adopted as of end-January 2013.
  - Sources: fiscal responsibility laws, fiscal councils’ websites, IMF country papers, country authorities, IMF desk economists, European Commission database on independent fiscal institutions, OECD background notes.
  - Most variables in the dataset are binary (see Box 1: Fiscal Council Dataset: Variables Description).

### VI. Empirical approach and structure of the paper
- The paper presents:
  - Section II: revisits credibility problem of fiscal rules and how fiscal councils can help.
  - Section III: presents the Fiscal Council Dataset and describes councils as of January 2013.
  - Section IV: analyzes the role of fiscal councils in fostering fiscal discipline using the dataset.
  - Section V: concludes.

### VII. Table 1 — List of Fiscal Councils in the Dataset (country, fiscal council, start of activity)
- Australia — Parliamentary Budget Office — 2012
- Austria — Government Debt Committee — 2002
- Belgium — High Council of Finance - Section "Public Sector Borrowing Requirement" — 1989
- Belgium — Federal Planning Bureau — 1994
- Canada — Parliamentary Budget Office — 2008
- Croatia — Fiscal Policy Council — 2013
- Denmark — Danish Economic Council — 1962
- Finland — National Audit Office of Finland — 2013
- France — High Council of Public Finance — 2013
- Georgia — Parliamentary Budget Office — 1997
- Germany — German Council of Economic Experts — 1963
- Hungary — Fiscal Council — 2009
- Ireland — Irish Fiscal Advisory Council — 2011
- Italy — Parliamentary Budget Office — 2014
- Japan — Fiscal System Council — 1950
- Kenya — Parliamentary Budget Office — 2009
- Mexico — Center for Public Finance Studies — 1999
- Netherlands — Netherlands Bureau for Economic Policy Analysis — 1945
- Portugal — Portuguese Public Finance Council — 2012
- Romania — Fiscal Council — 2010
- Serbia — Fiscal Council — 2011
- Slovak Republic — Council for Budget Responsibility — 2011
- Slovenia — Institute of Macroeconomic Analysis and Development — 1991
- Slovenia — Fiscal Council — 2009
- South Africa — Parliamentary Budget Office — 2014
- South Korea — National Assembly Budget Office — 2003
- Sweden — Swedish Fiscal Policy Council — 2007
- United Kingdom — Office for Budget Responsibility — 2010
- United States — Congressional Budget Office — 1974

- Notes included in the dataset:
  - "The South African and Italian PBOs are being established and expected to be fully operational by the end of 2014."
  - "The fiscal council in Slovenia has been formally established but it is not yet fully operational."
  - "Chile has established a Fiscal Advisory Council in April 2013."

### VIII. Figures, Tables, and Appendix items listed in the unit
- Figures listed: 1 through 5 with titles (e.g., "1. Number of Fiscal Councils", "5. Mean Forecast Error and Fiscal Councils’ Characteristics").
- Main tables listed: 1 through 7 covering dataset list, remits, independence and tasks, size and composition, fiscal performance, and forecast errors.
- Appendix tables: A.1 through A.3 (Correlation Matrix; Fiscal Councils Characteristics and Primary Balance Absolute Forecast Error; Fiscal Councils Characteristics and Absolute Real Growth Forecast Error).
- Box: "1. Fiscal Council Dataset: Variables Description."

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### Box 1. Fiscal Council Dataset: Variables Description

### Box 1. Fiscal Council Dataset: Variables Description

### Independence and governance
- Legal independence: The council’s independence from political interference is guaranteed by law or treaty (Yes: 1, No: 0).
- Safeguards on budget: Safeguards on the council’s budget are deemed to exist if the budget is (i) set by the central bank, (ii) part of the overall budget of the legislative branch (i.e. protected from executive decisions), (iii) guaranteed by budget appropriations with separate line item in the budget, or (iv) subject to any other guarantee commonly granted to independent institutions, such as regulators.
- Composition, appointment, and term of high-level staff:
  - Variables indicating whether or not (Yes: 1, No: 0) the high level staff of the council includes (i) non citizens, (ii) academics, (iii) policy experts, and (iv) civil servants.
  - Three variables indicate whether or not (Yes: 1, No: 0) the council high-level staff is appointed by (i) the government, (ii) the parliament, or other institutions (head of state or other independent institution).
  - An additional variable captures the length of council members’ terms (in years).
- Staff commensurate to tasks: Assessment of the ability to fulfill the tasks specified in the mandate qualitatively and quantitatively (Yes: 1, No: 0).

### Size of the council
- Number of technical and administrative staff.
- Number of management and high level staff.

### Remit of fiscal councils
- Forecasts provision/assessment: The council is mandated to provide or assess macroeconomic forecasts used for budgetary projections (Yes: 1, No: 0).
- Monitoring of Fiscal rules: The council is mandated to monitor compliance with numerical fiscal rules (Yes: 1, No: 0).
- Costing of measures: The council is mandated to provide costing of measures and reforms affecting public finances (Yes: 1, No: 0).
- Long-term sustainability analysis: The council evaluates long-term sustainability issues (Yes: 1, No: 0).
- Positive analysis: The council performs positive analyses (Yes: 1, No: 0).
- Normative analysis or recommendations: The council performs normative analysis or provides recommendations (Yes: 1, No: 0).

### Main trends and features
- Historical count: From only one in 1960—the Netherlands Bureau for Economic Policy Analysis, also known as the Central Planning Bureau—the number of councils has surged since the 2008-09 crisis, reaching 29 by the end of January 2013.
- Recent new councils: New fiscal councils include the Parliamentary Budget Office in Canada and South Africa, the Office for Budget Responsibility in the United Kingdom, and the High Council of Public Finance in France.
- Geographic distribution: Although most established fiscal councils are in advanced economies, particularly in Europe, there is growing interest in emerging markets and developing economies.
- Legal drivers in Europe: Increasing interest in fiscal councils is likely to continue, particularly in Europe, where new legal requirements mandate most European Union member states to establish national independent bodies to monitor compliance with fiscal rules and produce or at least assess or validate macroeconomic and budgetary forecasts.
- Notable legal and institutional developments:
  - The Spanish Congress approved on October 10, 2013 the draft bill of the Constitutional Law creating the Independent Fiscal Responsibility Authority along with amendments to this law on October 30.
  - Chile has formally established a new fiscal council in June 2013.

*Source: Box 1. Fiscal Council Dataset: Variables Description*

### Box 1. Fiscal Council Dataset: Variables Description

### Box 1. Fiscal Council Dataset: Variables Description

### Tasks and channels of influence (variable definitions)
- Public reports: The council prepares public reports on its activities (Yes: 1, No: 0).
- High media impact: IMF staff assessment based in the number of publications, media references to these reports, and in the case of EU members, the authorities own assessment reflected in the Fiscal Institutions Database (Yes: 1, No: 0).
- Binding forecasts: The council provides binding forecasts for the budget (Yes: 1, No: 0).
- Formal consultation or hearings: Formal obligation of the government to consult and/or of the parliament to audition the fiscal council during the budget process (Yes: 1, No: 0).
- Stall the budget process: The council has the legal mandate to stall the budget process (Yes: 1, No: 0).
- Comply or explain: Legal or constitutional obligation to use the forecasts of the fiscal council, or the freedom of the government to use its own forecasts with the obligation to justify deviations from the forecasts of the fiscal council publicly (Yes: 1, No: 0).

### Descriptive findings from the Fiscal Council Dataset
- Institutional models
  - Most fiscal institutions (90 percent) are attached to the legislature (parliamentary budget office), the executive, or set-up as stand-alone bodies.
  - Parliamentary budget offices: historical presence in presidential systems (United States and Korea) and diffusion to many advanced and developing countries (Australia, Canada, Italy, Georgia, Kenya, Mexico, South Africa).
  - Fiscal councils attached to the executive: examples include Belgium, Croatia, Denmark, Japan, Netherlands, Slovenia, United Kingdom.
  - Stand-alone fiscal councils: examples include Germany, Hungary, Ireland, Portugal, Romania, Serbia, Slovak Republic, Sweden.
  - Two countries (France and Finland) have fiscal councils attached to the supreme audit institution (note: in Finland the audit office actually performs the task of the council).
- Remits and tasks
  - All existing councils perform positive analyses.
  - Vast majority evaluate long-term sustainability issues and provide or assess macroeconomic forecasts.
  - Less common but growing responsibilities: monitoring compliance with fiscal policy rules and costing of policy measures.
  - Explicit monitoring of numerical rules and costing of new initiatives present in councils established in Romania (2010), Ireland (2011), Serbia (2011), Slovak Republic (2011), and Italy (2014).
- Legal protections and resources
  - Majority benefit from legal protections against partisanship when fulfilling their mandate (Table 3).
  - Less than half of councils have their budget protected from arbitrary cuts that could undermine their ability to fulfill mandates.
  - Safeguards on budget range from separate budget line subject to vote in Parliament to multi-year appropriations.
- Influence channels
  - Fiscal councils mostly influence policy indirectly through public debate and reputational impact.
  - All fiscal councils prepare public reports; many have significant media impact.
  - Direct involvement in budget process (binding forecasts or “comply or explain”) is rare.
  - A sizeable number have formal consultations with government or hearings in Parliament (examples: Finland, France, Georgia, Italy, Romania, Serbia).
- Size and composition
  - Size varies greatly with remit complexity and available resources.
  - Small councils (<10 full-time professionals) often limited to fiscal policy assessment (examples: Finland, Ireland, Slovenia).
  - Larger councils (20+) often prepare forecasts, conduct long-term sustainability analysis, and cost policy measures (examples: Netherlands, South Korea, United States).
  - Most staffs composed of academics, policy experts, civil servants; growing share of foreign experts in senior management.

### Empirical analysis: sample, methods, and scope
- Panel for fiscal performance analysis
  - Cross-country panel covering 58 advanced and emerging countries over the period 1990-2011.
  - About half of the countries in the sample established a council during the period.
  - Estimation method: Bias-corrected Least Square Dummy Variable (LSDVC) dynamic panel estimator (Bruno, 2005), applied to a Bohn (1998) style reaction function.
  - Observations reported: 901; Countries: 58 (Table 5).
- Forecast-quality analysis
  - Sample: 26 advanced and emerging European countries over the period 1998-2010.
  - Observations reported: 225; Countries: 26 (Tables 6 and 7).
  - Forecast error definitions: forecast error = forecast for t made in t-1 minus outcome (estimate for t made in t+1); mean forecast error captures bias; mean absolute value captures accuracy.

### Key empirical findings on fiscal performance (from regression results)
- Fiscal rules
  - Fiscal Rules Index (FRI) coefficients reported across specifications: 0.277; 0.275; 0.283; 0.249; 0.232; 0.289; 0.295; 0.280 (statistical significance reported in Table 5).
  - Interpretation in text: countries with better designed fiscal rules exhibit stronger fiscal performance.
- Fiscal councils (existence vs. characteristics)
  - Mere existence of a fiscal council not sufficient to improve fiscal balances; specific characteristics matter.
  - Statistically significant council characteristics associated with better fiscal performance:
    - Legal independence (example coefficient reported: 0.930 in one specification; significance indicated in Table 5).
    - Fiscal rule monitoring (example coefficient reported: 1.524; significance indicated in Table 5).
    - Forecast assessment / Forecasts production (example coefficients reported: Forecast Assessment 1.293; Costing of measures 1.355; significance indicated in Table 5).
    - High media impact (example coefficient reported: 0.904; significance indicated in Table 5).
    - Staff number (high level) appears associated (example coefficient reported: 0.296; significance indicated in Table 5).
  - Debt and macro controls in the model:
    - Primary Balance (t-1) coefficient reported ~ 0.823 to 0.826 across specifications (statistically significant).
    - Debt (t-1) coefficient reported: 0.015; 0.017; 0.016; 0.023; 0.016; 0.016; 0.016; 0.017 (statistically significant in Table 5).
    - Output gap (t-1) coefficient reported around -0.095 to -0.091 (significant).
- Caveats emphasized in the text
  - More than half of existing fiscal councils created after 2005 — limited time span for some councils.
  - Econometric limitations: potential endogeneity and unobserved preferences; high correlation among council characteristics complicates joint impact assessment.
  - Interaction tests between fiscal rules and fiscal councils did not reveal statistically significant complementarities (likely due to limited variation; most countries with councils also have numerical rules).

### Key empirical findings on forecast quality (bias and accuracy)
- Primary balance forecast errors (Table 6)
  - Fiscal rules index: coefficients reported -0.215; -0.252; -0.213; -0.215; -0.261; -0.193 (some significant at 10%/5%).
  - Fiscal council (existence) coefficient reported: -0.783 (t-statistic (3.32)***).
  - Legal independence coefficient reported: -0.911 (t-statistic (3.76)***).
  - Safeguards on budget coefficient reported: -0.821 (t-statistic (3.14)***).
  - High media impact coefficient reported: -0.783 (t-statistic (3.32)***).
  - Forecasts provision/assessment coefficient reported: -0.863 (t-statistic (3.35)***).
  - Fiscal rules monitoring coefficient reported: -0.653 (t-statistic (2.28)**).
  - Interpretation in text: countries with fiscal councils (especially independent ones, with high media impact, that provide/assess forecasts and monitor rules) have less biased and more accurate budgetary forecasts.
- Real growth forecast errors (Table 7)
  - Output gap coefficient reported: 0.377; 0.377; 0.380; 0.377; 0.378; 0.377 (statistically significant).
  - Fiscal rules index coefficients reported: 0.140; 0.126; 0.151 (some borderline significance).
  - Fiscal council existence coefficient reported: -0.285 (not statistically significant in Table 7).
  - Safeguards on budget reported as associated with lower real growth forecast error (coefficient -0.456; (1.73)*).
  - Only independent fiscal councils seem associated with lower bias of real output forecasts per the text.
  - Text notes real GDP forecasts tend to be over-optimistic during booms; independent councils associated with lower bias and better accuracy for real output forecasts.

### Conclusions and policy implications (as stated in the source)
- The dataset documents a surge in the number of fiscal councils since the crisis and wide diversity in institutional forms, remits, and tasks.
- Empirical evidence (conditional correlations) suggests that only well-designed fiscal councils are associated with:
  - Stronger fiscal performance.
  - More accurate and less biased forecasts.
- Key features of effective fiscal councils highlighted in the text:
  - Operational independence from politics (legal or operational guarantees, protected resources).
  - Provision or public assessment of budgetary forecasts.
  - Strong presence in the public debate (high media impact).
  - Explicit role in monitoring fiscal policy rules.
- Complementarity with fiscal rules:
  - Fiscal rules are associated with better fiscal discipline.
  - Fiscal councils could complement rules in promoting sound fiscal policies by addressing inflexibilities and helping with transparency and public debate.
- Policy guidance implied by the analysis:
  - Design fiscal councils to fit country-specific characteristics (human and financial resources, political traditions, causes of fiscal imbalance).
  - Emphasize independence, forecasting capacity, media outreach, and rule-monitoring roles to maximize councils’ effectiveness.

*Source: IMF Fiscal Council Dataset (Box 1 content).*

### APPENDIX I: CORRELATIONS AMONG FISCAL COUNCILS’ FEATURES

### APPENDIX I: CORRELATIONS AMONG FISCAL COUNCILS’ FEATURES

### Correlation Matrix (Table A.1)
- Variables: Legal independence; Independent budget (Safeguards on budget); Fiscal rule monitoring; Forecast assessment; High media impact.
- Correlations (pairwise):
  - Legal independence — Legal independence: 1
  - Legal independence — Safeguards on budget: 0.75*
  - Legal independence — Fiscal rule monitoring: 0.43*
  - Legal independence — Forecast assessment: 0.80*
  - Legal independence — High media impact: 0.89*
  - Safeguards on budget — Safeguards on budget: 1
  - Safeguards on budget — Fiscal rule monitoring: 0.39*
  - Safeguards on budget — Forecast assessment: 0.65*
  - Safeguards on budget — High media impact: 0.77*
  - Fiscal rule monitoring — Fiscal rule monitoring: 1
  - Fiscal rule monitoring — Forecast assessment: 0.32*
  - Fiscal rule monitoring — High media impact: 0.61*
  - Forecast assessment — Forecast assessment: 1
  - Forecast assessment — High media impact: 0.81*
  - High media impact — High media impact: 1
- Note: * significant at 1%

### Appendix II: Fiscal Institutions and the Accuracy of Forecasts — Overview
- Number of observations: 225
- Number of countries: 26
- Time dummies: Yes (in all specifications)
- Significance notation: * significant at 10%; ** significant at 5%; *** significant at 1%.

### Table A.2. Fiscal Councils Characteristics and Primary Balance Absolute Forecast Error
- Dependent Variable: Forecast Error (Primary Balance)
- Coefficients and robust t-statistics (parentheses) reported across specifications (columns):
  - 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)***
  - Safeguards on 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 (across columns):
    - 1.105  (2.88)***
    - 1.187  (3.01)***
    - 0.857  (2.64)***
    - 1.105  (2.88)***
    - 1.171  (3.04)***
    - 0.819  (2.45)**
  - R2 (across columns): 0.21; 0.22; 0.19; 0.21; 0.20; 0.19
  - Observations: 225
  - N. of countries: 26

### Table A.3. Fiscal Councils Characteristics and Absolute Real Growth Forecast Error
- Dependent Variable: Forecast Error (Primary Balance)
- Coefficients and robust t-statistics (parentheses) reported across specifications (columns):
  - 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)**
  - Safeguards on 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 (across columns):
    - 1.649  (4.38)***
    - 1.671  (4.48)***
    - 1.470  (3.21)***
    - 1.649  (4.38)***
    - 1.739  (5.04)***
    - 1.466  (3.14)***
  - R2 (across columns): 0.48; 0.48; 0.48; 0.48; 0.48; 0.48
  - Observations: 225
  - N. of countries: 26

*Source: APPENDIX I and APPENDIX II, _wp1458 - APPENDIX I: CORRELATIONS AMONG FISCAL COUNCILS’ FEATURES*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2014/_wp1458.pdf_