FOREWORD
The relevance of quality of public finances
Improving the quality of public finances has become a key policy challenge for European policy
makers. While maintaining sound budget positions is the linchpin of the European Union's fiscal
framework, rising pressures from globalisation and ageing populations have put additional demands
on fiscal policy with a view to supporting economic growth. In particular, the upward pressures from
age-related expenditure require public spending in other areas to become more efficient to free up
resources so as to avoid a further increase of the already large public sectors and high tax burdens in
many EU Member States. More generally, greater public spending efficiency is an objective that is
independent of the size of government sectors and has therefore received much attention recently.
Modernising public finance institutions and budget administration as well as creating supportive fiscal
frameworks can help achieve this objective and have therefore been another focus of the work on
quality of public finances (QPF). At the same time, public resources can be better targeted toward
“growth-enhancing” areas, for example R&D and education. These challenges should be tackled hand
in hand with creating revenue systems that are apt to the challenges of today's globalised markets. In
particular, efficient tax structure should keep in check the disincentives for the provision of capital and
labour and thereby potentially damaging growth prospects.
The role of the Working Group on Quality of Public Finances
Responding to the importance of quality of public finance, the Working Group on Quality of Public
Finances was formed in 2004, as a sub-committee to the Economic Policy Committee (EPC). Its
objective is to analyse the links between public finances and long-term potential growth. Since QPF
comprises many dimensions, the Working Group decided to follow a step-by-step approach and over
time focus on the various aspects of QPF, including by presenting and discussing country
experiences.^1
Members of the Working Group include expert staff of the Member States, the European Commission,
Eurostat and the European Central Bank. Moreover, the OECD and the IMF participate as observers
and have provided input. The Group has also regularly invited experts from academia and national and
international administrations for an exchange of views.
The main issues discussed and the main findings
The key aspects of QPF, which the Working Group has discussed since 2004, are presented in this
collection of papers. Unfortunately, only a subset of the large amount of work can be included here
due to space constraints. It should also be noted that the papers reflect the state at the time when they
were presented at the Working Group. That means, especially for the country case studies, policies and
institutions may have changed since, which is not reflected in the papers.
The papers are structured into five sections broadly covering the key topics of the Working Group.
The main issues and findings are as follows:
Framework and data: The first focus of the Working Group was to define a concept of quality of
public finances and identify data needs to conduct cross-country studies. Quality of public finances
(^1) The original EPC mandate from May 2004 was accompanied by specific ECOFIN mandates of January 2006,
October 2006 and June 2007.