A Fiscal Rule That Has Teeth:A Suggestion for a Fiscal Sustainability Council Underpinned by the Financial Markets
| Autor: | PhDr. Petr Hedbávný , doc. Ing. Ondřej Schneider MPhil., Ph.D., PhDr. Jan Zápal Ph.D., |
|---|---|
| Typ: | IES Working Papers |
| Rok: | 2005 |
| Číslo: | 79 |
| ISSN / ISBN: | |
| Publikováno v: | IES WP 2005/79 |
| Místo vydání: | Prague |
| Klíčová slova: | fiscal policy, European Union, sustainability |
| JEL kódy: | E6, H6, H87 |
| Citace: | |
| Abstrakt: | In this paper, we set out to examine an efficient fiscal-policy framework for a monetary union. We illustrate that fiscal policy’s bias toward budget deficit only temporarily ceased at the end of the 20th century as European countries endeavored to qualify for euro-zone membership, which compelled strict limits on budgetary deficits. We then explore which mechanisms might instill a sense of fiscal disciple in governments. We find that most mechanisms suffer from the incentive-incompatible setup whereby governments restrict their own fiscal-policy freedom. We argue that even multilateral fiscal rules, such as the EU’s Stability and Growth Pact, suffer from the same endogeneity flaw. Consequently, we argue that a fiscal rule must incorporate an external authority that would impartially assess fiscal-policy developments. Using U.S. debt and bond-market data at the state level, we show that financial markets represent a good candidate as, vis-à-vis the American states, they do differentiate state debt according to the level of debt. We thus argue for a fiscal institution––what we call the Fiscal Sustainability Council––that would actively bring financial markets into the fiscal-policy process, and we explain the technique whereby this could be effected. |
| Ke stažení: |
WP 2005_79_Schneider, Hedbavny, Zapal |
