SWEDISH ECONOMIC POLICY REVIEW 15 (2008) 173-192
Fiscal policy councils: Unlovable or just unloved?
Independent Fiscal Policy Councils (FPCs) share the attractive features
of independent Monetary Policy Committees in central banks.
They offer many of the advantages of both rules and discretion, without
their drawbacks. Rules are bound to be counterproductive sometimes
because unexpected events occur. Discretion, the most frequent
practice so far, has been accompanied by debt buildups that are testimony
of fiscal indiscipline. The question is why so few countries have
adopted FPCs and why, when they did, they chose a soft version.
This paper argues that there are serious difficulties, none insurmountable,
and many misconceptions, which are examined one by one. It
also asserts that the true reason why FPCs are not loved by governments
is the same that lies behind fiscal discipline: the presence of
highly effective interest groups.