A fiscal council is an independent body set up by a government to evaluate its

expenditure An expense is an item requiring an outflow of money, or any form of fortune in general, to another person or group as payment for an item, service, or other category of costs. For a tenant, rent is an expense. For students or parents, tuition i ...

and

tax policy Tax policy refers to the guidelines and principles established by a government for the imposition and collection of taxes. It encompasses both microeconomic and macroeconomic aspects. The former focuses on issues of fairness and efficiency in ta ...

. Typically, councils are staffed by

economist An economist is a professional and practitioner in the social sciences, social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...

s and

statistician A statistician is a person who works with Theory, theoretical or applied statistics. The profession exists in both the private sector, private and public sectors. It is common to combine statistical knowledge with expertise in other subjects, a ...

s who do not have the ability to set policy, but provide advice to governments and the public on the economic effects of

government budget A government budget is a projection of the government's revenues and expenditure for a particular period, often referred to as a financial or fiscal year, which may or may not correspond with the calendar year. Government revenues mostly incl ...

s and

policy Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an or ...

proposals. Some fiscal councils also provide

economic forecasting Economic forecasting is the process of making predictions about the economy. Forecasts can be carried out at a high level of aggregation—for example for GDP, inflation, unemployment or the fiscal deficit—or at a more disaggregated level, for ...

. Fiscal councils evaluate government's

fiscal policies In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variables d ...

, plans and performance publicly and independently, against

macroeconomic Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/ GDP ...

objectives related to the long-term sustainability of public finances, short-to-medium-term macroeconomic stability, and other official objectives.

History

Several fiscal councils arose following the

2008 financial crisis The 2008 financial crisis, also known as the global financial crisis (GFC), was a major worldwide financial crisis centered in the United States. The causes of the 2008 crisis included excessive speculation on housing values by both homeowners ...

with the intention of avoiding

debt crises Debt crisis is a situation in which a government (nation, state/province, county, or city etc.) loses the ability of paying back its governmental debt. When the expenditures of a government are more than its tax revenues for a prolonged period, t ...

and alleviating the problem of deficit bias, which is a tendency of governments to allow increasing long-term deficits. Analysis from the

International Monetary Fund The International Monetary Fund (IMF) is a major financial agency of the United Nations, and an international financial institution funded by 191 member countries, with headquarters in Washington, D.C. It is regarded as the global lender of las ...

proposes that deficit bias results from both voters and

policy-makers Policy is a deliberate system of guidelines to guide decisions and achieve rational outcomes. A policy is a statement of intent and is implemented as a procedure or protocol. Policies are generally adopted by a governance body within an orga ...

– the former through imperfect information on budgets and neglect for future generations, and the latter through

imperfect information The imperfect ( abbreviated ) is a verb form that combines past tense (reference to a past time) and imperfective aspect (reference to a continuing or repeated event or state). It can have meanings similar to the English "was doing (something)" o ...

information asymmetries In contract theory, mechanism design, and economics, an information asymmetry is a situation where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which can sometimes ...

, electoral pressures, a common-pool problem among government agencies, and a combination over optimistic spending and growth projections. Fiscal councils alleviate deficit bias by providing independent

non-partisan Nonpartisanship, also known as nonpartisanism, is a lack of affiliation with a political party and a lack of political bias. While an ''Oxford English Dictionary'' definition of ''partisan'' includes adherents of a party, cause, person, etc., ...

estimates of government income. The public will then, in theory, react to this information by supporting governments that deliver sustainable fiscal policies and electorally punishing governments that are fiscally irresponsible. Fiscal councils, such as the United Kingdom's

Office for Budget Responsibility The Office for Budget Responsibility (OBR) is a non-departmental public body funded by the HM Treasury, UK Treasury that provides independent Economic forecasting, economic forecasts and independent analysis of the public finances. It was formal ...

, have been criticised for mostly advising from the perspective of

neoclassical economics Neoclassical economics is an approach to economics in which the production, consumption, and valuation (pricing) of goods and services are observed as driven by the supply and demand model. According to this line of thought, the value of a go ...

and advocating for balanced-budgets and

small government Small means of insignificant size. Small may also refer to: Science and technology * SMALL, an ALGOL-like programming language * ''Small'' (journal), a nano-science publication * <small>, an HTML element that defines smaller text Arts and ...

, to the detriment of heterodox economic approaches based on the

real economy The real economy concerns the production, purchase and flow of goods and services (like oil, bread and labour) within an economy. It is contrasted with the financial economy, which concerns the aspects of the economy that deal purely in transa ...

and more interventionist

New Keynesian New Keynesian economics is a school of macroeconomics that strives to provide microeconomic foundations for Keynesian economics. It developed partly as a response to criticisms of Keynesian macroeconomics by adherents of new classical macroe ...

approaches to the

business cycle Business cycles are intervals of general expansion followed by recession in economic performance. The changes in economic activity that characterize business cycles have important implications for the welfare of the general population, governmen ...

Deficit bias

More countries in the world run budget deficits than not. In the long term, a high budget deficit is unsustainable. High budget deficits have aggravated crises like the

European debt crisis The euro area crisis, often also referred to as the eurozone crisis, European debt crisis, or European sovereign debt crisis, was a multi-year debt crisis and financial crisis in the European Union (EU) from 2009 until, in Greece, 2018. The e ...

. Governments that are unsure of being re-elected may ignore the long-term consequences of fiscal deficits and use generous fiscal policy to increase their chances of re-election. Voters may favour fiscal deficits because they benefit from tax cuts and public spending increases, and only bear part of the cost, the rest being borne by future generations. Alternatively, electorates vote for deficits because they are not fully aware of the problem.

List of fiscal councils

(United Kingdom) **

Scottish Fiscal Commission The Scottish Fiscal Commission () is a non-ministerial office. It was established by the Scottish Parliament to provide independent forecasts of taxes and social security expenditure, and GDP forecasts, to help inform the government's budget and it ...

Federal Planning Bureau The Federal Planning Bureau (FPB) is a Belgian independent public agency that carries out research and makes projections on economic, social and environmental policy issues. It also studies the integration of these policy issues within a context ...

(Belgium) *

Parliamentary Budget Officer The Office of the Parliamentary Budget Officer (OPBO; ) is an office of the Parliament of Canada which provides independent, authoritative and non-partisan financial and economic analysis. The office is led by the Parliamentary Budget Officer ...

(Canada) * National Assembly Budget Office (Korea) *

Congressional Budget Office The Congressional Budget Office (CBO) is a List of United States federal agencies, federal agency within the United States Congress, legislative branch of the United States government that provides budget and economic information to Congress. I ...

(United States) *

Netherlands Bureau for Economic Policy Analysis , Terminology of the Low Countries, informally Holland, is a country in Northwestern Europe, with Caribbean Netherlands, overseas territories in the Caribbean. It is the largest of the four constituent countries of the Kingdom of the Nether ...

Parliamentary Budget Office The Parliamentary Budget Office (PBO) is an agency of the Australian Parliament whose purpose is to "inform the parliament by providing independent and non-partisan analysis of the budget cycle, fiscal policy and the financial implications of ...

(Australia) * High Council of Public Finances (France) *

Fiscal Council A fiscal council is an independent body set up by a government to evaluate its government spending, expenditure and tax policy. Typically, councils are staffed by economists and statisticians who do not have the ability to set policy, but provide a ...

(Hungary) *

Irish Fiscal Advisory Council Irish Fiscal Advisory Council (Fiscal Council; ) is a non-departmental statutory body providing independent assessments and analysis of the Irish Government's fiscal stance, its economic and budgetary forecasts, and its compliance with fiscal rul ...

(Ireland) * Council for Budget Responsibility (Slovakia) * Independent Authority for Fiscal Responsibility (Spain) *Independent Advisory Board of the Stability Council (Germany) * Swedish Fiscal Policy Council (Sweden) * European Fiscal Board (EU) *Network of fiscal councils:

EU Independent Fiscal Institutions Network The EU Independent Fiscal Institutions Network (EU IFIs) is a voluntary and inclusive institution open to all independent fiscal oversight bodies operating in the EU. It provides a platform to exchange views, expertise and pool resources in areas ...

References

{{reflist Fiscal policy

History

Deficit bias

List of fiscal councils

See also

References