Working Paper: CEPR ID: DP3238
Authors: Charles Wyplosz
Abstract: 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.
Keywords: Cyclicality; Discipline; Fiscal Policy; Institutions; Rules; Discretion
JEL Codes: D78; E32; E63; H60
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| discretionary fiscal policies (E62) | public debts decline in OECD countries during the 1990s (H63) |
| rules-based frameworks (F55) | public debts decline in OECD countries during the 1990s (H63) |
| fiscal policy committees (E62) | effective fiscal management (H12) |
| fiscal policy (E62) | public debt sustainability (H63) |
| debt levels rise (H63) | spending decreases (E62) |
| economic conditions (E66) | fiscal policies become more countercyclical in the U.S. (E62) |
| economic upswings (E32) | less pronounced countercyclical actions in Germany (E58) |