How to Maintain Fiscal Discipline?
- Macro Rules or Spending Rules -
27th OECD/SBO Meeting
June 2006
Visiting Fellow
Policy Research Institute/Ministry of Finance Japan
HIDEAKI TANAKA
hideakitanakamof@aol.com
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What I'm going to present .....
1. Based on the analysis by Anderson
and Minarik(2006), clarify the
characteristics of macro rules and
spending rules and the relationship
between them.
2. Analyze briefly what happened since
the end of 1990s in OECD countries
3. Discuss how to maintain fiscal
aggregate discipline
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1. Major points of the paper
1. Describes major characteristics of
deficit rules and spending rules.
2. Concludes relative superiority of
spending rules not only from the
economic point of view but also
political and practical point of view.
3. Proposes the alternative approach
to fiscal policymaking in EU.
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2. Background of both rules
EMU macro rule
Required to measure
fiscal positions across
countries without
manipulation
Lots of problems
identified but works
not so bad from the
historical perspective
BEA spending rule
Learned from the
failure of GRH
VS． Fragmentation in the
US budget process
Succeeded in regulating
the behavior of
Congress by giving them
some discretions
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3. Another criteria to assess rules
Ideal fiscal rules
1.Well-defined
2.Tranparent
3.Simple
4.Flexible
5.Adequate relative to final goal
6.Enforcement
7.Consistent
8.Underpinned by structural reforms
EU rules
BEA rules
++
++
+++
++
++
+
++
+
1.Criteria taken from Kopits and Symansky(1998)
2.Evaluation for EU rules done by Buti, Eijffinger and Franco(2003)
+++: very good, ++: good, +: fair
3.Evaluation(provisional) for BEA rules done by Tanaka
++
+
+
+++
+
++
++
+
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4. Limitations of each rule
Macro rules
Difficult to manage the actual political
process in the budgeting
Spending rules
Difficult to show the overall fiscal strategy
in transparent manner
Both are not mutually
exclusive in practice
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5. What happened since the end of 1990s
GG Fiscal Balance (OECD Economic Outlook No78)
OECD
Average
98
99
- 1.2 - 0.8
00
01
02 03
04
05
0.3 - 1.3 - 3.2 - 4.0 - 3.6 - 3.2
Surplus to deficit: Austria, Germany, Ireland, France, Italy,
Luxembourg, Netherlands, Spain, Switzerland, UK, USA
Continuously deficit: Czech, Greece, Hungary, Japan, Poland,
Portugal, Slovak
Continuously surplus: Australia, Belgium, Canada, Denmark,
Finland, Korea, Norway, Sweden, NZ, Iceland
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6. Issues in the first half of 2000s
France, Germany, USA, etc
1.Luck of political will
2.Weakness in expenditure control
Australia, Sweden, etc
1.Increase of political pressure under
budget surplus
2.Insufficiency of risk analysis and control8
7. Lessons from experiences
１．Rational of compliance and political commitment
A framework to make the gov. commit
２．Institutional design of fiscal rules
Combination of macro and spending rule
３．Micro budgeting reform for final objective
Use public money efficiently and effectively
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8. NZ Fiscal Responsibility Act 1994
FRA sets out the principles for formulating fiscal policy in NZ.
1.Follow five principles of responsible fiscal management
2.Publish fiscal intentions and objectives
:required reports are Budget Policy Statement and
Fiscal Strategy Report
3.Publish a range of reports resulting in a comprehensive set of
fiscal information prepared under GAAP(Generally accepted
accounting principles)
:economic and fiscal updates for the next three years
:the half year economic and fiscal update
:pre-election economic and fiscal update
4.Refer all fiscal policy reports to a parliamentary select committee
Same approaches - Australia: Charter of Budget Honesty Act (1998)
UK:
Code for Fiscal Stability (1998)
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9. NZ's experience in fiscal policy making
Fiscal Responsibility Act
1. Political commitment
2. Transparency and accountability
Three-year fiscal cap stipulated in CAs
1. Prevention of profligacy
2. Keep annual budgeting along MTFF
"FRA, which was introduced at least partly as a contraceptive
to MMP, has altered the context within which fiscal debate occur.
Amongst other things, the Act has affected parties' election
promises, as these must be demonstrated publicly to fit within
realistic parameters" ( Boston and Church, 2002 )
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10. Conclusion Remarks
Everybody tries to circumvent fiscal rules.
Political and economic environment
behind rules vary from time to time.
No single rule which will be able to
maintain its effectiveness for good.
1. Inform public merits of keeping discipline.
2. Increase the political cost of breaching rules
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