Accountability. Ex post control procedures should allow elected officials to verify that the delegated
prerogatives were used in accordance with the mandate. Sanctions against the agency can be envisaged if
violations are detected.
Independence. There should be explicit guarantees against ex ante political control. That includes the
prohibition for elected officials to issue instructions to the agency, specific appointment procedures for
the agency’s executives, and provisions for a long-term budget allowing it to hire staff commensurate to
the task both in terms of numbers and qualifications.^5
2. Independent fiscal authorities
An IFA could reduce deficit bias and improve policy design and implementation. This could be achieved
by providing IFAs with the mandate to decide on specific aspects of fiscal policy within a general policy
framework previously defined through the political process. While no country has so far instituted a body
similar to an IFA, a wide spectrum of proposals has delineated different mandates for such bodies.^6
Alluding to the terminology familiar in the context of central banks (see Box 6.1), the proposals mainly
differ according to whether the IFA would independently set an objective (e.g., debt sustainability) and a
target of fiscal policy (such as the annual budget balance), or have some jurisdiction over one or more
instruments of fiscal policy (e.g., tax rates). While no proposal envisages that all three aspects would be
set by the IFA, some propose the IFA’s mandate to consist of a combination of targets and instruments
(Figure 6.1).
At one end of the spectrum, an IFA could be mandated with setting both the long-term fiscal objectives
and the annual targets for the budget balance (see Appendix 3). The IFA could, for example, be
mandated to set a binding deficit target at the beginning of the budget process with a view to preserving
long-term fiscal sustainability, given the economy’s cyclical position. The definition of the precise
objectives, that is, a specific future debt level or the budget balance (over the cycle), would be left to the
IFA (Eichengreen, Hausmann, and von Hagen, 1999). While the individual revenue and expenditure
plans in the budget would continue to be decided through the political process, parliament would only be
legally allowed to pass the budget if the target set by the IFA was reached.
Some more limited proposals envisage IFAs mandated to prescribe budget targets within a politically
prespecified framework of fiscal policy objectives.^7 The IFA could be mandated to set a binding budget
target with a view to reaching a future debt level or a certain budget balance over the cycle prespecified
through the political process. While some proposals focus on the IFA’s contribution to debt sustainability
(Wyplosz, 2005), others concentrate more on the need to pursue countercyclical fiscal policy (Calmfors,
2003). Ultimately, however, an IFA would necessarily have to be concerned with both sustainability and
cyclicality, as they cannot be fully separated.
In the same vein, an IFA could be instituted as the impartial enforcer of an existing fiscal rule. The IFA
could, for example, be mandated to veto any budget proposal at odds with the fiscal rule. The more
economic analysis the implementation of a rule requires, the more important the value added of such an
IFA could be. For instance, while a balanced budget or “golden rule” is relatively clear-cut, the
(^5) Constraints on the availability of human capital as well as other administrative limitations could nonetheless be a
problem in many developing countries.
(^6). However, similar bodies have been instituted in a number of countries under exceptional circumstances in the absence of
adequately functioning domestic political institutions by the international community, not the national government;
examples are Austria after World War I or, more recently, conflict areas administered by the United Nations.
(^7) A range of other potential IFAs discussed in the literature are summarized in Appendix 1.