Learning from Sweden

Lars Calmfors has written a new paper, based on his time as the founding chair of the Swedish Fiscal Policy Council.  The paper is here.

Abstract:

The Swedish Fiscal Policy Council (FPC) set up in 2007 is one example of the recent international trend to create independent fiscal watchdogs. The FPC has established itself as an important participant in the Swedish economic policy discussion. The FPC has small resources and a broad remit including employment, growth, income distribution and monitoring of how well the government explains its policies in addition to evaluation of fiscal policy. The reason why it can work is that the FPC acts as a complement to other institutions. The interaction between fiscal policy and other policy areas as well as the possibility to exploit the council’s expertise in several areas are arguments in favour of the broad mandate, but at the same time there could be a risk that interest is diverted away from fiscal issues. The FPC’s experiences illustrate the time inconsistency issues involved in establishing a fiscal council: a government has an incentive to create such a body as a signal that it will pursue responsible and rational policies, but it also has an incentive to constrain the council’s activities once government policies are criticised.

10 replies on “Learning from Sweden”

It would be interesting to know what characteristics Philip Lane thinks our advisory council lacks which other more successful advisory councils do not lack.

Without wanting to criticise any of its members, our own fiscal council does not seem to have made any impact on the public consciousness in relation to economic policiy formation. (Somebody I know who is quite politically aware recently suggested to me that we should set up an Irish fiscal advisory council!) It has further made little impact on the scrutiny by the opposition of economic policy.

We can contrast this to the UK situation where their fiscal watchdog’s pronouncements have been quoted in relation to UK government policy on the front page of the FT on a number of occasions.

I don’t think this is really an issue of personnel. It is a matter of scope, design, funding at the bone fides of the Government Depts interacting with the fiscal council. The Dept of Finance flagged its view that such a Council was not necessary when the idea was first mooted. They clearly intended defending their patch irrespective of the damage to the public weal. So far, it seems that they have succeeded and that their capture of the new Government has been a complete success notwithstanding the threat posed by an independent advisory council.

“The FPC’s experiences illustrate the time inconsistency issues involved in establishing a fiscal council: a government has an incentive to create such a body as a signal that it will pursue responsible and rational policies, but it also has an incentive to constrain the council’s activities once government policies are criticised.”

If the opposition even had the benefit of knowing how such constraints have been implemented here (as compared with successful models elsewhere) then they could campaign for corrective action. Somebody credible needs to spell it out.

@Zhou,

There are two issues here. First, a government will never voluntarily establish and empower sufficiently a body that will constrain its discretion. And, even if sufficient pressure is exerted it will do everything in its power to create an optical illusion. And that, precisely, is what the IFAC is. Prof. Lane is far too polite, but he hinted at this in his IT op-ed where he indicated that the IFAC, as currently empowered and resourced, would not be capable of doing what is required under the ‘fiscal compact’.

Second, why should there be a need for such a statutory body that is in some way ‘independent’ of both government and parliament? Surely such a body – and there is no doubt that ‘something’ is required – should be resourced and empowered by and reporting directly to parliament with its primary being to provide parliament – or its relevant committee – with the research, support and advice to scrutinise and restrain government’s exercise of its fiscal discretion?

@Paul hunt

I suspected Prof. Lane may have been dropping hints on this which I have missed to date. Do you have a link to the relevant op-ed you refer to? Really, it is a matter for the opposition to push for the IFAC to be brought up to scratch. Unfortunately, they need a bit of independent help in doing so!

I agree that any advisory council must provide assistance to the opposition/parliament. This must be a core part of its activities.

@Zhou,

You may have missed the recent post, link and thread:
http://www.irisheconomy.ie/index.php/2012/02/07/more-on-the-fiscal-compact/

The relevant quote is:
“At the technical level, it will be necessary for Ireland to build a domestic capacity that can provide independent, high-quality assessments of structural trends in the economy and the public finances, since only an independent institution can provide the type of medium-term forecasts that will be trusted by the European Commission and the other member governments.

Such a role goes beyond the current advisory mandate of the new Irish Fiscal Advisory Council….”

You seem intent on turning the rump of the ‘natural party of government’ into responsible, effective parliamentarians.

Good luck with that 🙂

“The FPC’s experiences illustrate the time inconsistency issues involved in establishing a fiscal council: a government has an incentive to create such a body as a signal that it will pursue responsible and rational policies, but it also has an incentive to constrain the council’s activities once government policies are criticised.”

No!

Really?!

To be fair, the IFAC guys are just getting started, and their remit can extend or contract as necessary in the next few years. The important thing is that they become the type of fiscal council Sweden has, and not the type of fiscal council Greece has, and has had, for the last 20 years.

@Stephen,

The IFAC is a ‘creature’ of government and ‘advises’ government. It’s remit has been defined by statute, which is why I suspect Philip Lane has indicated that it is not fit for purpose in the context of the proposed ‘fiscal compact’.

It simply infuriates me when I see people with the competence, integrity and public-spiritedness that the members of the Council clearly possess being forced to be complicit in the optical illusion the government wishes to project and sustain.

And this is true across the entire area of public administration. For example, we are told we have ‘independent’ – even ‘world-class’ – economic regulation. It is no more ‘independent’ of government as my arm is from my torso. And it is ‘world-class’ only in so far it is similar to economic regulation in most EU member-states where economic regulation is either a creature of government or captured by those it is supposed to regulate or both.

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