Denmark’s Economic Council provides judgment on fiscal and structural policies and recommends
changes.^18 Its analysis is based, among others, on its own economic forecasts for the subsequent two to
three years. The council’s semiannual reports are produced by its three independent chairs.
The composition of these FCs varies considerably, ranging from specific representation to loose expert
panels. In Belgium, the federal finance ministry, the central bank, and the regions are represented on the
agency, reflecting the council’s role in policy coordination in the context of substantial fiscal
decentralization. These representatives cannot hold political posts at the same time. In Denmark, in
addition to independent experts, the council has 26 members representing trade unions, employers, the
central bank, and the government; the three chairmen (“wise men”) are generally academics.
The evidence suggests that these agencies have made an effective contribution to fiscal discipline in their
respective countries. Although it is difficult to disentangle their impact from that of other factors, the
recommendations of these agencies seem to have been taken seriously, with the respective governments
adhering to them in many instances. These agencies have helped make the process of fiscal policy
formulation and implementation transparent and contributed to a constructive public debate on budgetary
issues. This, in turn, has often helped highlight the requirements for sustainable policies and strengthen
the governments’ ability to implement them. For instance, in Belgium, the council’s recommendations on
the borrowing requirement were followed particularly closely for a number of years during the 1990s,
and allowed some difficult consolidation measures to be implemented. In addition, the council’s
recommendations have served as a useful basis for multiannual cooperation agreements between
different levels of governments.
The experience with these agencies also highlights the role of political environment, and usefulness of
rules. In both cases, the agencies’ establishment reflected a political will and social consensus to stabilize
or consolidate the fiscal position. Under such circumstances, these agencies reinforced credibility of
commitment by increasing the political cost of deviating from responsible fiscal policies. In addition,
there was a quite marked complementarity between “judgment” (entailing discretion) and rules.
For instance, in Belgium, the agency’s recommendations were adhered to by the government because the
need for adjustment was enshrined in a transparent rules-based framework. This underlines the
contention that a clear standard against which the government’s policies can be assessed, particularly if it
has been set by the government or parliament itself, may enhance the effectiveness of an FC.
(^18) Website: http://www.dors.dk/english/index.htm.