DP3238 Fiscal Policy: Institutions versus Rules

Author(s): Charles Wyplosz
Publication Date: February 2002
Keyword(s): cyclicality, discipline, fiscal policy, institutions, rules and discretion
JEL(s): D78, E32, E63, H60
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3238

The Paper explores how fiscal policy can be made both more disciplined and more counter-cyclical. It first examines whether the decline of public debts observed in the OECD area during the 1990s can be explained either by less activism or by a priority towards consolidation. It then argues that rules, for example the Stability and Growth Pact, are less likely to deliver the desired outcome than institutions. Drawing a parallel with monetary policy, it examines how a Fiscal Policy Committee could reproduce what Monetary Policy Committees have achieved in central banking.