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Post-crisis Fiscal Policy$
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Carlo Cottarelli, Philip Gerson, and Abdelhak Senhadji

Print publication date: 2014

Print ISBN-13: 9780262027182

Published to MIT Press Scholarship Online: September 2015

DOI: 10.7551/mitpress/9780262027182.001.0001

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Institutional Reforms and Fiscal Adjustment

Institutional Reforms and Fiscal Adjustment

(p.485) 18 Institutional Reforms and Fiscal Adjustment
Post-crisis Fiscal Policy

Xavier Debrun

Andrea Schaechter

The MIT Press

This chapter examines recent institutional reforms specifically aimed at fostering fiscal discipline and counter-cyclicality in the aftermath of the 2007 financial crisis. It begins with an overview of fiscal institutions, especially in the European Union, before and during the crisis and their shortcomings in terms of fiscal governance. It then considers key aspects of recent institutional reforms related to numerical fiscal rules, nonpartisan fiscal agencies, and major public financial management features. The chapter argues that the mixed results obtained with fiscal policy rules in the run-up to the 2008 to 2009 crisis have favored the emergence of a new generation of institutions. For instance, fiscal rules are now designed to better respond to cyclical output movements and are equipped with explicit enforcement mechanisms. In addition, the growing number of independent fiscal councils signals countries' interest in other forms of legitimate constraints on fiscal discretion, involving better operation of checks and balances in the political system and greater awareness by the electorate. Finally, these new institutions are backed by public financial management reforms aimed at a stronger medium-term orientation of the budget.

Keywords:   institutional reforms, fiscal discipline, counter-cyclicality, financial crisis, fiscal institutions, European Union, fiscal governance, financial management, fiscal policy, fiscal rules

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