How to Maintain Fiscal Discipline Macro Rules or Spending Rules

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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_at_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
BEA spending rule
Required to measure fiscal positions
across countries without manipulation Lots of
problems identified but works not so bad from
the historical perspective
Learned from the failure of GRH Fragmentation in
the US budget process Succeeded in
regulating the behavior of Congress by giving
them some discretions
VS.
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3. Another criteria to assess 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)
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
control
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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