Fiscal councils, or independent fiscal institutions, are growing in popularity. In the last year or so they have been established in Portugal, Ireland, Australia and most recently, Slovakia. (See my fiscal council web page for details.) They provide an independent check on the fiscal numbers produced by government. The councils differ widely in focus, structure and remit (see Calmfors and Wren-Lewis, 2011, for a comparison), with some concentrating on the macro numbers, and others also doing substantial microeconomic project costing along the lines of the Congressional Budget Office in the United States. For just one example of why independent analysis is useful, see here.
Establishing a fiscal council is only half the battle. Almost by definition, fiscal councils will be an inconvenience to governments. They are also highly vulnerable, as the government provides their funding. This is particularly true in their earlier years, when councils have not had time to build up public support. A contest between a fiscal council and the government is a David and Goliath encounter where the only weapon the council has is public support. A cynical view might be that therefore they are unlikely to be truly independent – why annoy the hand that feeds you? However experience suggests otherwise, largely as a result of the integrityof those that lead them.
A recent example comes from the Parliamentary Budget Office (PBO) in Canada. The PBO has had a number of antagonistic brushes with government. The latestinvolves government departments refusing to disclose data. Now it appears a no-brainer that a fiscal council needs data to do its job – but then, as an active supporter of fiscal councils, maybe I’m biased. So read this reportand this blog, and make up your own mind.
As the only weapon fiscal councils have in battles like these is public opinion, then it is very important that economists do what they can to provide their support when appropriate. I was shocked at the ease with which in 2011 the Hungarian government effectively closed down their two year old fiscal council (see herefor details). Economists have long been champions of the independence of central banks, but independent fiscal councils are just as important, and arguably they are far more vulnerable than central banks.
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