binding decisions on the fiscal adjustment needs for the EU member countries. Noncompliance with
these rulings by the governments would entail sanctions to be imposed by the European Court of Justice.
(^12) The effectiveness of the FC, in this case the European Commission itself, would stem from the legal
consequences of noncompliance with its decisions. However, the role of the FC in these proposals should
not be overstated: ultimately, the idea is to make fiscal rules that were established through the political
process legally binding like any other constitutional provision.
Some propose the independent preparation of fiscal and macroeconomic forecasts by an FC.13 Without
presuming that independent forecasts would be technically better, these proposals are motivated by the
concern that policymakers may utilize biased economic forecasts underlying the budget to obfuscate
policy intent and limit ex ante public scrutiny (see also the section “Can Other Institutions Play the Role
of Fiscal Agencies?”). To the extent that biased forecasts contribute to excessive deficits, independent
forecasts could improve fiscal performance. The FC would prepare forecasts on a continuous basis that
would increase the transparency of the budget and of fiscal performance throughout the year. Different
from private sector or academic forecasters, the FC would be mandated by the government and would
thus have access to inside information. The forecasts could be revisited during the year to adjust the
fiscal stance where needed (see the Chilean example in the section “Can Other Institutions Play the Role
of Fiscal Agencies?”). While the ultimate decision on the budget forecasts could be left to the
government, the impact of independent forecasts on fiscal discipline would be enhanced if their use for
the budget were made mandatory. This type of FC could make a constructive contribution to promoting
fiscal discipline.
4. Implementation issues
The proposed institutional setup for FCs vary, but autonomy is a general consideration (Table 6.1). As
for IFAs, most proposals envisage that FCs would consist of economic policy experts from academia and
the public sector, whose autonomy could be bolstered by a number of provisions, not unlike those in
place for many independent central banks.^14 As a special case, two proposals (Inman, 1996; and De Haan,
Berger, and Jansen, 2004) envisage a role for the judiciary in strengthening compliance with fiscal rules.
Accountability is less of a concern for FCs than it is for IFAs, but nonetheless it could be enhanced if
FCs were instituted by parliament and required to explain recommendations in detailed public reports.
Moreover, an FC’s influence in the debate would depend on the credibility of its assessment.
Whether an FC is likely to make a significant contribution to policy will depend in part on the severity of
the fiscal problem in a given country. A political system with a fair amount of credibility and manageable
slippages may prefer a relatively limited mandate for an FC, that nonetheless still enhances public
scrutiny of policies. However, countries demonstrating a serious deficit bias under discretion and low
credibility might consider a more significant move with the FC given the authority to provide normative
assessments that the government feels obliged to take into account.
The institutional environment in a given country is also likely to determine the shape and effectiveness of
FCs. Its effectiveness will depend on the importance of accountability in a country’s institutional setup,
as enshrined in its constitution. When checks and balances are strong, an FC with a mandate limited to
analysis could usefully lend support to the more fiscally responsible parties. But where checks and
(^12) Inman (1996) makes a similar proposal.
(^13) Jonung and Larch (2004), Ubide (2004), and Wyplosz (2005). In this vein, the IMF Code of Good Practices on Fiscal
Transparency (see IMF, 2001) recommends independent expert assessments of fiscal and macroeconomic projections.
(^14) Of course, the format of an FC would need to take country circumstances, including the scarcity of the relevant
expertise, into account.