INTRODUCTION:
II. FISCAL GOVERNANCE
Establishing sound fiscal institutions is the first building block of the quality-concept for public finances
since it affects all other aspects of QPF. Institutions can act as safeguards against the volatility of day-to-
day policy priorities and thus help to warrant the ‘sustainability of sustainable policies’. Fiscal
governance via institutions – i.e. rules and/or institutional agents – works mainly on two levels. First,
institutions make a decisive difference in reaching and maintaining a sound fiscal stance on the macro-
level, i.e. in reducing and constantly curbing budget deficits. And second, new rules and institutions
enable modern, results- and efficiency-oriented ways of steering the administration on the micro-level.
Naturally, both perspectives supplement each other.
The first paper in this section by the European Commission (2006) provides a wide-ranging overview of
the use of numerical fiscal rules in the European Union and their impact on the fiscal stance. The
empirical study points out that the number of rules has increased significantly over the past twenty years.
This was usually a good move for the respective countries. Overall, the analysis corroborates the
influence of fiscal rules in determining budgetary outcomes. It underlines the relevance of well-designed
national fiscal rules and appropriate institutional fiscal frameworks to ensure sound fiscal policies.
Debrun, Hauner and Kumar (2007) analyse the role of independent fiscal agencies in lowering and
restraining budget deficits. The success with delegating monetary policy has led some to argue that
analogous fiscal agencies could play a useful role in increasing fiscal discipline. The paper identifies two
main types of institutions, independent fiscal authorities (IFA) and fiscal councils (FC). Full-fledged
independent IFAs may have some appeal from the analytical perspective, yet the authors do not consider
them a viable political option. In contrast, fiscal councils which offer independent analysis, forecasts and
normative judgments are likely to be more generally acceptable and could help reduce policy distortions.
Specific design issues of fiscal rules are discussed in the paper Anderson and Minarik (2006). They
compare, for example, deficit and expenditure rules and discuss other design feature with a view of the
multiple objectives of the budget. They conclude with a clear recommendation of rules that administer
government expenditure directly.
The following paper by Curristine, Lonti and Joumard (2006) looks for the ways and means to improve
the efficiency of public sector activities on the micro-level. The authors review main institutional drivers
that may contribute to improving public sector efficiency. They find that there is no one-size-fits-all
blueprint for reform; yet evidence nevertheless suggests that three factors may improve public sector
performance best: (i) the decentralisation of political power and spending responsibility to sub-national
governments, (ii) appropriate human resource management practices, and (iii) – in the education and
health sectors – higher scales of operations. The authors also focus on one other important institutional
factor in more detail: on performance information and its use in the budget process.
Country experiences in modernising public administrations and improving the efficiency and
effectiveness of public spending are surveyed by the ensuing European Commission issues note (2007).
It becomes obvious that virtually all Member States are undertaking initiatives to reform their public
administrations. These reform steps may vary significantly from one to another, depending on starting
points, differences in political and administrative cultures and different sources of public sector
inefficiencies. Still, Member States appear to focus their reform attention primarily on four main areas:
performance-orientation, organisational aspects, human resource management, and encouraging the use
of ICT tools.
The section on fiscal governance concludes with two instructive country studies on the implementation
of core institutional reforms. The paper by Hansson-Brusewitz and Lindh (2005) gives a record of the