assessment of any rule that has to be met over the cycle requires considerable expertise, which can
weaken implementation. In such cases, the rulings of the IFA could be particularly useful.^8
Although an analytical case for IFAs can be made, their establishment appears unlikely for a number of
reasons. First and foremost, the institution of an IFA raises issues of democratic accountability that are
much more serious than those pertaining to independent central banks.^9 Second, there is a risk that
conflicts between the IFA and the government could undermine policymaking: for example, in-year
adjustments to the budget (due to unforeseen events) would require close cooperation between the IFA
and the government; in countries with substantial fiscal decentralization, an IFA would need also close
coordination with subnational governments. Third, policymakers are reluctant to delegate a significant
part of their mandate (particularly given that monetary policy often is already independent).
In sum, these concerns are likely to explain why there are to date no IFAs in operation in any country.
This strengthens the view that similar but less intrusive fiscal agencies could play a useful role in promot-
ing fiscal discipline. These are discussed in the following section.
3. Fiscal councils
Fiscal councils (FCs) could help reduce the deficit bias while leaving discretion to the political
representatives. They could contribute to greater transparency and therefore accountability of fiscal
policy and thereby raise the political cost of inappropriate uses of fiscal policy in terms of credibility of
the policymakers. A variety of FCs have been in operation in a number of countries. They range from
organizations essentially mandated to provide independent projections of budgetary variables and general
fiscal analysis to bodies assessing the consistency of a government’s budgetary policies with its own
long-term objectives or proposing specific fiscal adjustment measures in the context of fiscal rules.
Mandate
Existing FCs can be broadly categorized into three types (Figure 6.1). The first type has a mandate to
provide objective analysis of current fiscal developments, their macroeconomic context (such as the
cyclical position of the economy), long-term sustainability considerations, and costing of budgetary
initiatives. The second type provides independent projections and forecasts. The third type, in addition,
has the mandate to provide normative assessments. This includes, for example, the appropriateness of
fiscal policy in a given macroeconomic environment, or a recommendation of a particular fiscal stance
for a given year within a medium-term framework previously defined through the political process.
A number of proposals in the literature describe arrangements essentially similar to those noted above
(Table 6.1). Most often, they propose a strengthening of the commitment to existing fiscal rules through
an FC type of institution.^10 Such an institution would typically assess budgetary performance relative to
fiscal rules and might also be mandated to suggest adjustments if necessary. The proposals are mostly
centered around debt sustainability, although some also envisage a role for the FC in stabilization,
whereby it could issue statements on the appropriateness of the fiscal stance from a cyclical
perspective.^11
(^8) While the well-known technical constraints on the assessment of cyclically adjusted balances would remain, the IFA
could at least remove any politically motivated interpretation of underlying economic developments.
(^9) Some proposals suggest addressing such concerns through accountability-enhancing measures similar to those applied to
independent central banks, and/or overriding rules if a qualified majority in parliament disagrees with a decision of the
fiscal authority.
(^10) For example, Committee on Stabilization Policy (2002), Fatás and others (2003), European Commission (2004), and
Ubide (2004).
(^11) For example, Committee on Stabilization Policy (2002).