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 is a ...

and

tax policy Tax policy includes the guidelines developed by a government regarding how taxes are imposed, in what amounts, and on whom. It has both microeconomic and macroeconomic aspects. The macroeconomic aspect concerns the overall quantity of taxes t ...

. 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 theoretical or applied statistics. The profession exists in both the private and public sectors. It is common to combine statistical knowledge with expertise in other subjects, and statisticians may wor ...

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 document prepared by the government and/or other political entity presenting its anticipated tax revenues (Inheritance tax, income tax, corporation tax, import taxes) and proposed spending/expenditure (Healthcare, Educa ...

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 organ ...

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, plans and performance publicly and independently, against

macroeconomic Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...

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

financial crisis of 2007–08 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fina ...

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, th ...

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, headquartered in Washington, D.C., consisting of 190 countries. Its stated mission is "working to foster globa ...

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 In economics, perfect information (sometimes referred to as "no hidden information") is a feature of perfect competition. With perfect information in a market, all consumers and producers have complete and instantaneous knowledge of all market pri ...

information asymmetries In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. Information asymmetry creates an imbalance of power in transactions, which ca ...

, 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 Nonpartisanism is a lack of affiliation with, and a lack of bias towards, a political party. While an Oxford English Dictionary definition of ''partisan'' includes adherents of a party, cause, person, etc., in most cases, nonpartisan refers sp ...

estimates of government income, and by reminding the public of the government's intertemporal budget constraint. 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 UK Treasury, that the UK government established to provide independent economic forecasts and independent analysis of the public finances. It was formally ...

, 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 good ...

and advocating for balanced-budgets and

small government Libertarian conservatism, also referred to as conservative libertarianism and conservatarianism, is a political and social philosophy that combines conservatism and libertarianism, representing the libertarian wing of conservatism and vice ver ...

, 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 transac ...

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 macroec ...

approaches to the

business cycle Business cycles are intervals of Economic expansion, expansion followed by recession in economic activity. These changes have implications for the welfare of the broad population as well as for private institutions. Typically business cycles are ...

Deficit bias

Government debt as % of GDP, OECD countries 2018

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 European debt crisis, often also referred to as the eurozone crisis or the European sovereign debt crisis, is a multi-year debt crisis that took place in the European Union (EU) from 2009 until the mid to late 2010s. Several eurozone membe ...

. 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 ( gd, Coimisean Fiosgail na h-Alba) 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 in ...

Federal Planning Bureau The Federal Planning Bureau (FPB) is a Belgian independent public agency. It makes studies and projections on economic, social and environmental policy issues and on their integration within the context of sustainable development. The last Plan Co ...

(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 The National Assembly Budget Office (NABO) supports the Korean National Assembly by analyzing and evaluating issues related to the national budget, fund and fiscal operations. History 2003. : Establishment of the National Assembly Budget Offi ...

(Korea) *

Congressional Budget Office The Congressional Budget Office (CBO) is a federal agency within the legislative branch of the United States government that provides budget and economic information to Congress. Inspired by California's Legislative Analyst's Office that manages ...

(United States) * CPB Netherlands Bureau for Economic Policy Analysis *

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 p ...

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

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

(Hungary) * Irish Fiscal Advisory Council (Ireland) * Council for Budget Responsibility (Slovakia) *

Independent Authority for Fiscal Responsibility The Independent Authority for Spanish Fiscal Responsibility (''Autoridad Independiente de Responsabilidad Fiscal española'', AIReF) is an independent agency for fiscal control in Spain. It was created in 2013 by the Spanish Government, on the i ...

(Spain) *Independent

Advisory Board of the Stability Council (Germany) Advisory may refer to: * Advisory board, a body that provides advice to the management of a corporation, organization, or foundation * Boil-water advisory, a public health directive given by government to consumers when a community's drinking wate ...

* 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