Democratic Accountability, Deficit Bias, and Independent Fiscal Agencies
July 1, 2011
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Summary
Despite growing interest among policymakers, there is no theory of independent fiscal institutions. The emerging literature on "fiscal councils" typically makes informal parallels with the theory of central bank independence, but a very simple formal example shows that such a shortcut is flawed. The paper then illustrates key features of a model of independent fiscal agencies, and in particular the need (1) to incorporate the intrinsically political nature of fiscal policy - which precludes credible delegation of instruments to unelected decisionmakers - and (2) to focus on characterizing "commitment technologies" likely to credibly increase fiscal discipline.
Subject: Budget planning and preparation, Central bank autonomy, Central banks, Fiscal policy, Inflation, Prices, Public debt, Public financial management (PFM)
Keywords: Africa, assessment of competence, bias of the kind, Budget planning and preparation, central bank, Central bank autonomy, deficit bias, deficit ceiling, deficit contract, delegation, equilibrium deficit, Fiscal councils, fiscal policy, fiscal policy decision, Inflation, inflation contract, policy mistake, public goods, WP
Pages:
15
Volume:
2011
DOI:
Issue:
173
Series:
Working Paper No. 2011/173
Stock No:
WPIEA2011173
ISBN:
9781462313327
ISSN:
1018-5941
