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Fiscal Discipline: Rules Rather than Institutions

Published online by Cambridge University Press:  26 March 2020

Charles Wyplosz
Charles Wyplosz*
Affiliation:
The Graduate Institute, Geneva, and CEPR
*
e-mail charles.wyplosz@graduateinstitute.ch
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Abstract

The lack of fiscal discipline is a natural and pervasive implication of the perceived separation between the benefits from public spending and the taxes that individuals and interest groups receive and pay, respectively. The implication is that budget preparation, decision and execution must be constrained. The challenge is that the policymakers who need to be constrained are those who must decide the constraints. Two broad classes of solutions are possible: institutions that shape the budgetary process and quantitative rules that set limits. The mounting experience with both institutions and rules is disappointing, for reasons that are often complementary. Examining the reasons for this state of affairs, this article argues that institutions and rules ought to be combined and associated with advisory fiscal councils.

Keywords

Fiscal disciplinedeficit biaspolicy rulesfiscal institutionsE02E61
Type
Research Articles
Information
National Institute Economic Review , Volume 217 , July 2011 , pp. R19 - R30
Copyright
Copyright © 2011 National Institute of Economic and Social Research

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